The Stock Market is affected by the political and economic events that we read in the media, but ultimately the millions of people and companies that buy and sell stocks or any other instrument, decide in which way the Market will head. In 2016 the consensus in the media was that if Trump became president, the Stock Market would crash, which didn't happen. When Trump lost the presidency to Biden, Trump predicted a Market crash, which also didn't happen. With the collapse of SVB and the problems faced by Credit Suisse and First Republic, there is a natural fear that the banking crisis could spread to other institutions, the final verdict of the Market is still pending, will it crash?
Market Overview
The hard part of this Market is that it's not trending anymore in any direction, at least not yet. In simple terms, unless you are a day-trader or a swing trader, the current sideways movement in the weekly chart will make it very hard to find a company that isn't affected by the current Market catalysts.
In the next few weeks, the support of the S&P 500 at 3,800 and the resistance at 4,150 are the ones that need to be monitored to get some clues about the Market direction (dotted lines).
If we review the daily chart of the S&P 500, a reaction rally is expected, it looks like it even started already. Every time that the daily chart goes to oversold territory (-3 Keltner Channel or below, yellow highlighted areas) there is at least a short-lived rally. If there is a rally, a realistic target for the trading week of Mar/20 would be 4,100.
Most of those reaction rallies that started at the -3 KC (highlighted in yellow) were short-lived bounces from oversold conditions. They didn't get that far, only the ones highlighted in blue got to the +2 KC or above. The dotted lines in the daily chart are at the same levels than in the weekly chart previously displayed. Most of the Market activity will continue to happen between those lines during the next few weeks until something significant happens that Makes the S&P 500 break past one of them.
Risk Management
If you have a profitable trading strategy that depends on high volatility, then this is your moment. However, no matter what kind of plan you have, the key part is, what are you going to do when things go wrong. If you start buying stocks and the Market decline accelerates, do you have stops in place? at what level do you accept you were wrong? are you transforming day-trades into long term investments just to avoid the pain of selling at a loss?
We all have been in those painful situations where difficult decisions must be made. Keeping a trading journal and exercising risk management are the solution. There are entire books around this subject, but it's like exercising and diets, we live in a time where we have a lot of information and methods to keep a healthy weight, but obesity still is a public health issue that some call a pandemic. It's not enough to know that keeping a journal and risk management are important. If they aren't part of your trading life, you are headed towards disaster.
Summary
The S&P 500 is likely going to continue moving between 3,800 and 4,200 for a while. The Market moves in the direction of the volume. If people panic and starts selling stocks, there's more supply and the price goes down. When Market participants get greedy and the demand is greater than the supply, you have to pay more to get the stock you want, the prices go up. We are in the scenario when there's a balance, there's not enough dominance of supply or demand to make the Market trend in any direction.
There will be a lot of news in the coming days about the negative catalysts that are moving the Market. I don't trade the news, so for me they will be just noise. Your trading plan will be like your compass to navigate this difficult Market. If the current situation isn't ideal for you to trade, don't trade, keep your account in cash and wait for opportunities. The Market is always changing, it might take weeks or months, but the current situation won't last forever.
