Market Volatility with Little Demand

The daily downtrend continues dragging down the main indexes. Beware of the reaction rallies, if there's an upward movement at some point during the trading week about to start, it's unlikely to get past 4,400 in the S&P 500. The persistent armed conflicts are contributing to elevated oil and food prices, with no immediate relief in sight. The bullish momentum has been waning since July 2023 when the S&P 500 barely touched the +3 Keltner Channel (KC, highlighted in yellow). Subsequently, the index has been making progressively lower highs, with occasional reaction rallies occurring only when the index reaches highly oversold levels (-3 KC). Until a strong catalyst disrupts this trend, there's limited reason to anticipate significant changes in the next trading week.

The situation is even less encouraging when reviewing the mid-caps (S&P 400) and small-caps (S&P 600). During the last three rallies, the index didn't even get to reach the +1 KC. That translates into a lot of supply entering the Market for the most risky instruments.

I still maintain multiple open positions, consisting of 14 long positions and 18 short positions. Over the past week, I initiated 10 new positions, which means I now have 13 positions that could potentially incur losses in the worst-case scenario where all stop losses are triggered. I adhere to a strategy of taking profits swiftly, with the initial target being when a stock moves 2 KC, followed by further profit-taking if it advances another KC. In the rare scenario where the stock keeps moving in my direction, I'll start pyramiding the position with only the realized and unrealized profits of that position.

When shorting, keep in mind that it's fear what's causing the decline. That's a sentiment that moves the stocks a lot faster than greed. I'm having troubles finding good entry points to pyramid the short positions.

Trading during the current daily downtrend isn't the best idea. But I get a better feeling of the Market when I'm trading with small positions. Finding big winners on the Long side is close to impossible with the current environment, at least for my trading system. I'm monitoring the strongest supports and resistances in the weekly charts. Until there's a significant breakout, I won't start opening more aggressive positions.

The market's direction remains uncertain, and we are steadily distancing ourselves from the historical market peak of the S&P 500 at 4,818, with minimal demand for riskier instruments. At this juncture, staying on the sidelines appears to be the most prudent course of action.