Trading a two-way street

●The market could continue to swing rather than trend up or down

●Shorter-term traders tend to like such environments


While investors have a tendency to think of the stock market in binary terms—i.e., if it’s not a bull market, it’s a bear market—late 2018 may provide a more realistic blueprint for the market in the next several months, at least until it works through certain issues that have been dogging it.

In other words, be prepared for a two-way market. The S&P 500 (SPX) fell 14% from its October 3 all-time high to its December 17 low, but that hardly tells the whole story. Between those two points it staged smaller downswings of -7.8%, -7.6%, -6.5%, -7.8%, and -5.8%, which were broken up by upswings of +3.9%, +8.1%, +6.4%, and +4%:

S&P 500 (SPX), 10/3/18–12/17/18. S&P 500 (SPX) price chart. Upswing, downswing

Source: Power E*TRADE

With so much uncertainty still surrounding key market issues, including trade, Federal Reserve policy, and earnings growth, traders should prepare for more volatility, regardless of which way the market ends up going. In the end, the market may have an upside or downside bias (stock market downtrends have some peculiar characteristics, by the way), but it could take a very choppy path to its ultimate destination.

Those price swings, which frustrate longer-term investors, can represent opportunities for disciplined traders prepared to limit risk and take what the market gives them.

Today’s numbers (all times ET): International Trade in Goods (8:30 a.m.), Retail Inventories (8:30 a.m.), Wholesale Inventories (8:30 a.m.), Pending Home Sales Index (10 a.m.).


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