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Will the S&P and Nasdaq rally roll over?

For the last month, we’ve been discussing a key area of resistance in the indexes — the 50 period simple moving average on the daily charts.

Well, today (or last night rather) something critical ‘changed’. The S&P and Nasdaq both traded higher overnight on positive news. But, the question is… will this rally quickly roll over?

That’s the question I’m going to answer…

… into the end of the day, and tomorrow. 

The news was that the US and China are going to meet in October. Of course, the market likes this news — as anything positive in regards to China is going to give bulls hope. That doesn’t mean the underlying fundamentals have changed, and while some of the technicals have recovered, there are still many deeply underwater. 

I personally don’t think the revelation of a trade talk meeting is altogether shocking, as they were supposed to meet in September. So if anything, it’s pushed back, but that’s alright.

The market likes what it likes! For that reason, it strikes me as ‘sell the news.’

I love this image from one of the people I follow on Twitter, because it couldn’t be more accurate: 

This on-going macro and political instability and uncertainty has caused the market to remain in pinball mode.

This ‘pinball’ market mode is difficult for traders. For me, it goes against really everything I’ve always done. I’ve been trained (like many of you who’ve ‘grown up’ trading in a bull market) as a momentum trader, primarily by John. There’s nothing I love more than following a beautiful, bullish trend, and buying strong tickers as they breakout to new highs. It gets even more fun when those strong names have high short interest, and the breakout is extreme (like what’s happened in Roku for the last two weeks). 

But, there’s something I’ve learned that I have to share with you — being able to adjust, recognize varying trading phases, and shift what you know and love… is absolutely critical to your success. 

So, what do we do about ‘pinball’ mode?

The market’s been stuck in this cycle for the last year and a half, but it’s been particularly escalated on the most recent round of retail tariffs. I’m not expecting this to change anytime soon, and we can’t trade based on the news. This is never going to make money.

We should absolutely be aware of the on-going political tensions, but we should trade based on our patterns and high probability moments in time — where we have an edge. 

This leads me to my ‘Trading Phases.’

While it’s accurate to say there are four market phases. MY analysis looks at it as three distinct trading phases.

I categorize it this way because even though there’s an uptrend and a downtrend, it’s still a trend, so my trading strategy is similar. It’s when you enter into more of the stock pickers market, and the pinball mode, that my strategies adjust to reflect the changing conditions of the market.

Check out the daily chart of the S&P below:

On this chart, I’ve highlighted the distinct trading modes that I use in these key times.

Right now, we’re in pinball mode — even with the break above the $2950 level. While it was definitely a solid vote for the bulls, to actually fully break out of this mode, we need to close above this level, and then have a higher high (a day of continuation tomorrow). As of this writing, before noon CT, we don’t have the answer to that. Just a strong move overnight that likely sent emotions soaring, and started sucking in those wanting to add more longs.

In pinball mode, it’s even more important to keep your head in the game. Here are my tips…

Pinball Mode Tips:

  • I use smaller profit targets. In a stock pickers market or a trending market, I like to target my maximum zones, and I’ll push it… riding the momentum until it ends. In this trading phase, I’m focusing on quick wins.
  • I trade with shorter time frames. In a trending market, I ‘ll be in trades for 2-3 weeks, but not now. These trades generally last a few days. 
  • Instead of going with momentum, I go against it. These major gap ups and downs are caused by heightened emotion (most of the time, emotion that has no rhyme or reason). Your edge is almost NEVER to go along with these gaps. 
  • Patience is your friend. During trending environments, I’ll absolutely jump on a trade as it’s taking off… but, not now. If you jump on something once it’s already going in this trading phase, you’re likely buying the high, or shorting the low. 

If you’re interested in learning more, I’ll be discussing all of this (and more) at my free webinar on September 10th at 7pm CT. We’re going to be focusing on the key skills that traders need, and how I adjust with the times and what I’m trading right now.

Do you have any questions for me, or want me to discuss something in particular during the webinar? What have you been looking for recently? What do you want to learn more about? Drop me a comment below.

P.S. I’ll be giving out an exclusive bonus (a sneak peak from my upcoming book) for all of those who join me live. Grab your spot here.

3 thoughts on “Will the S&P and Nasdaq rally roll over?”

  1. Great article … can’t wait to efficiently / effectively learn to trade the Pinball mode. Looking forward to your webinar on Sep 10.

  2. Hi Danielle! I took your ‘ Stacked Profits course ‘, but could not attend live, as I had to go out of town, all of a sudden. I have watched the Recording, but I am still confused. First, help me with a ‘ Trading Plan ‘. Second what should be the ” PreMarket Preparation “, and last give us a way to take quick advantage of your course. I love your ” Teacher approach ” to the webinar. Your guidance is greatly appreciated. Thank you.

    PS: I have an IRA A/C with about 17K in it.

    • Hi Ganga!

      I’m so glad you liked the course.

      For your trading plan, it should include written details on the following topics:
      1. Setups – Which setups will you trade? Examples – the squeeze, Fibonacci, reversion to the mean, earnings, etc
      2. Strategies – Which options/stocks strategies will you use? Examples – Butterflies for Phoenix trades, long calls for multi-squeezes, etc
      3. Time frames – Which charts will you use, and how long will you stay in the trade? Ex – I will use daily charts to find my setup and look for trades that last about 1-3 weeks.
      4. Targets and Stop Losses – When will you get out when you’re losing, and when will you get out when you’re making money?
      5. Risk management – How much will you risk per trade, and overall in your account?

      As far as pre-market prep goes, for me, I always like to look at overnight futures action, run scans to search for squeezes, look through key stocks to see where they are at (overbought, oversold?), check my key sectors. It depends what strategies and setups you’re using. You have to decide that first, so you can look for it in your preparation work.

      If you want to learn more and following along with my process, you can join me in my Mastery program. You can find this at http://www.simplertrading.com/profits/

      Hope that helps!


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