Last week was pivotal for the markets…
In fact, what happened last week could even set the tone for the remainder of the year.
See, the market contended with two pieces of important economic data.
The first piece of news came on Thursday, thanks to the release of gross domestic product data (GDP) for the first quarter.
The result was hugely disappointing. GDP declined at a 1.4% annualized pace in Q1. This was well below the consensus expectation of a 1% gain.
The second release of economic data was on Friday when the Fed’s key inflation gauge came in slightly hotter than expected.
The core personal consumption expenditures (PCE) index rose 2.8% in March. Economists were expecting a rise of 2.7%.
How did the market react to all this data? Well, the S&P 500 ended the week with a net gain of 2.67%.
While that sounds impressive on the surface, it just means the market traded back to where it was on Monday, April 15.
The bottom line here is that what markets hate above all else isn’t actually bad news…
It hates uncertainty.
A Trader’s Time to Shine
For example, if investors are confident the Fed has to keep rates at these higher levels for an extended time, they can price the market accordingly.
But when the Fed says one thing one month… and then something else the following month, that’s a completely different story.
Market participants will have a much harder time agreeing on what a “fair” price for the market should be.
In such conditions, you can expect to see melt-ups quickly followed by minicrashes.
For traditional buy-and-hold investors, this is a hellscape.
But for traders, this is their time to shine.
It’s very important to know when you have an advantage in the market.
During a runaway bull market, it’s true that buy-and-hold will likely outperform many trading strategies.
Free Trading Resources
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But when the market trades in wide and volatile ranges, buy-and-hold will get you slaughtered.
If you want to make real inroads with your trading this year, it’s essential you’re comfortable playing both sides of the market.
You must know when it’s time to be long, but also when it’s time to play big moves to the downside.
And if the market maintains its bearish reading on my mechanical scoring system, we’re likely to have quite a few bearish setups to be showing you.
Happy trading,
Imre Gams
Analyst, Market Minute