Difficult Swing Trading Environment

Difficult Swing Trading Environment


Long weekends affect different traders differently. Some enjoy the time away from trading, and some would rather the market be open seven days a week. And last week ended with a good deal of uncertainty, news pressure still being a pertinent factor. I have been writing a lot about geopolitical uncertainties because that has been a dominant factor in price action of late. Friday closed with worries still on many traders’ radars, and the afterhours of the SPY ETF featured downward pressure. And the long weekend passed, and then came Tuesday morning. And I hope your Tuesday was a good one. So what happened in the market today?

Risking the danger of sounding like a broken record (and dating myself by using the phrase “broken record”), this current market is a difficult swing trading environment. Stock and options traders love the strategy of entering longer-term swing trades when prices of quality stocks and ETFs pull back. In fact, Over much of 2020 and 2021 traders have been conditioned, in a way, to “buy the dip.” The notion is that the stock market will ultimately trend up over a long enough time horizon and buying-and-holding will prevail.

This may very well still be the case, but it appears that the requisite time horizon has lengthened a bit. As covered over recent blog entries, many traders in our room at BlackBoxStocks are taking more of a short-term mentality. The extended-hou8rs price action in the SPY illustrates one reason why that has been so.

Overnight, the SPY gapped down and proceeded to touch a pre-market low of $425.32. Upon open, price climbed to briefly breach the pre-market high level of $435.24, and it did it with somewhat convincing higher relative volume. However, the price immediately began to decline to test the ORB15 low (Opening Range Breakoutset to the 15-minute setting) of around $430.50 until breaking it at 12:20. It continued to descend prior to President Biden’s scheduled remarks on the Russian situation, bottoming at 425.86 and eventually closing just under $429.60.  This goes to show the power of the increasing uncertainty revolving around Vladimir Putin’s possible invasion of Ukraine.

And a note regarding the veracity of news. Conflicting news headlines regarding Putin’s intentions circled all weekend. Tuesday morning was no exception. As is always the case, be sure to triple check all news items you see regarding market-moving events. Sometimes fraudulent headlines gain momentum and circulate with powerful virality. Sometimes people are simply misinformed and goodnaturedly spread misinformation. Often the situation can simply change, and you may be reading a headline from four hours ago that is no longer valid. So, it is not to besmirch any particular headline, news outlet, or individual for spreading falsehoods that this is written. It is simply best practice for the individual to question any secondary information regarding the world that they receive. This is especially true if you are going to base trading decisions on this info. Don’t sell a position based on overtly misleading bearish news or go long based on biased or inaccurate information.

No one knows at the time of writing if the situation in Ukraine will be resolved diplomatically or not. Additionally, no one knows how the market will react. It has been recent lesson after lesson that the active stock and options daytrader benefits from simply waiting, observing, and making trades based on the current data in the price action and volume. Directionally timing the market tends to most often result in losses for many traders. If you are trading stocks and options truly intraday, it is always better to wait for the market to establish a strong trend and then attempt to catch a middle swath of the move. Good luck to all the rest of this week!