After a bullish start to 2025, we are in an uncertain stock market. Major indexes closed with losses for the month of February, and a slowing economy and possible tariffs on goods from Canada and Mexico have traders and investors spooked.
Now is the time to lean into technical analysis to understand market movements. Avoid anticipating what the markets will do – unless the evidence is overwhelmingly in favor of a particular trend.
In an uncertain stock market, expect moves without warning
During a football game, weather conditions might be ideal during the first half of a game but turn ugly during the second half. Each team needs to make adjustments on the fly to increase their chances of winning.
In markets, it is no different. If liquidity is poor, price action erratic, or trends have broken down or reversed then we need to change tactics, too.
Just look at the recent price action. It was unnerving for the bulls, who prefer a gentle glide with only a few hiccups. Of course, that does not always happen. Market action dictates how to proceed, not how we want it to proceed.
Use technical analysis and stay objective
Technical analysis provides us with some of the best tools to examine market conditions and manage an uncertain stock market. Technical and sentiment indicators will tell us how the market has changed and what we need to change about our approach.
Traders who do not respect the change in market conditions will soon find themselves losing money fast, chasing losses, and finally getting severely punished or totally wiped out. Emotions run high when you’re losing money, and they can sweep you in the wrong direction.
Take an objective point of view and clearly analyze market conditions. By staying objective, we can make a strong assessment and find high probability trades. This will not be easy! Tight moves are difficult, and we often see fewer new highs, poor breadth, higher put/call ratio readings, and a lift in volatility. Further, price action will not be consistent. We often see lower highs and lower lows or even a flat trend (lower highs, higher lows).
I will slow down my trading considerably, hold cash, keep puts working, and simply wait for the storm to pass.
