Date: 9/14/2022
Author: Chris Hood
There was definitely a shift in market sentiment yesterday.
It’s been quite some time since I’ve seen a single day’s candle on SPY take us back so far. The day’s quick reversal put us back to where we were on September 7th.
This pullback was likely a reaction to the release of the CPI report.
Though inflation may have slowed, it’s still going up.
And this is despite the aggressive interest rate hikes by the Fed. Most institutional investors seem to be bracing for even higher interest rates.
If you were wondering, high interest rates tend to make equity prices fall.
This is basic economics.
I typically don’t write about fundamental economic issues regarding trading. And that’s because I don’t use them as a basis for my trades.
I do well just following the signals I’ve created for my charts.
Like most other traders who focus on technicals rather than fundamentals, I believe that nearly all known information is already priced into a stock’s value.
Any new information (like the content of a CPI report) will always get digested by the big money institutions long before us, so it doesn’t matter anyway.
Betting on how the broad market will react to announcements is gambling.
As in earnings announcements, we will never know what those earnings will show.
We also have no idea how the market will react, and even if we did, we’re always going to be too late to take advantage of it.
All we can do is notice what happened and make the necessary adjustments.
I don’t try to peer too far into the future. However, I acknowledge that we have a large red candle and signals indicating potential downward price pressure over the next several days.
Any trades smashed by that candle will end up being losses.
I’ll salvage any trades that can be saved and look to make money on the short side if the downward momentum continues.
I expect to take a hit now and again…It’s part of this business.
My trading system doesn’t win every time, but it does win over time. So I know I’ll make back the money in the coming weeks and months.
None of this is meant to imply that I don’t watch the news.
I pay attention to what’s happening in the world and have my personal biases on what effect this might have on the market.
However, these ideas are not enough for me to act on without consulting my technical analysis.
If my hypothesis on this or that stock is correct, the signals will alert me to the market’s reaction.
News is a source of ideas, not trades.
The only thing that I would caution everyone about is trading when you know a major event is about to happen.
When actively trading, you must know when key events (like earnings) will be reported. Similarly, it’s critical to note when potentially market-moving events (such as CPI or FOMC) reports are to be released.
These are known events with unknown consequences.
Always trade carefully around them.
Cheers,
Chris Hood
