One thing for certain in this stock market is the uncertainty. One day markets fly higher on positive earnings reports and guidance. The next day, news of a potential bank failure cripples stocks. On other days, large drops are scooped up by bargain hunters. So, are we in a bull market or bear market? We are in neither.
The wild movements of the markets are nerve-wracking – a hallmark of bear markets. Bear markets not only mess with your accounts, but they also mess with your head. Bull markets are the opposite. Prices move higher and higher, allowing us to steadily build wealth – and our confidence as traders.
We don’t always have to be in a bull market or bear market
But don’t we always have to be in a bull market or bear market? No, and that makes trading even harder. When we know what the trend is, we can make trades with some level of comfort.
If we are not in a bull market, why should we buy stocks? And if we are not in a bear market, why should we be defensive and short stocks (or buy puts)? That’s the million dollar question.
I would characterize the current stock market as a no-direction market. The SPX 500 is swimming in a range of 3800-4200 so far this year, and that might be all we see in 2023. That 400 point range would be a stark difference from the wide ranges of the last few years, and it will frustrate everyone.
Heck, I’m frustrated!
Like you, I pay attention to news and events that drive stock prices to move. In the background, we are dealing with algo and high frequency traders, who are raising the noise level and creating volatile action. Trying to find a pattern has been exceedingly difficult. I like to wait for a confirming signal before I make a trade, and I often wait in vain. Meanwhile, the potential new pattern (up or down) reverses.
An eternal optimist would look towards 2024 and see blue skies ahead. But first we have to manage 2023, and if we’re not careful, it could be a money-losing year.