Swing Trading in a Volatile Market

This has been a crazy last few months, hasn’t it?

  • Huge swings in the Dow, S&P 500, Nasdaq.
  • Trade wars
  • Facebook drama
  • Recent jobs report miss
  • Rising U.S. Federal budget deficits
  • Rising interest rates.
  • Ever rising trade deficit

I hate it.  Not that I can’t enter trades by selling short or going long an inverse ETF (I do that sometimes), it’s the huge volatility I hate.  I swing trade individual stocks, ideally holding 1-10 days, with an average between 3-5 days.  When the market takes a huge beating 3 or 4 days in a row, I don’t care how solid your swing trade setup is.  It’s going down.  Swing trading in this market is like a motorboat trying to fight a super fast current, fighting the Niagara river, going backwards, with the falls roaring behind it.

Recently, I’ve moved mostly to the sidelines.  I’ve only entered swing trades that are 1 day or less.  I’ve had some perfect reversal setups recently that are at the perfect bounce point, at the perfect point when the market is set to roar back 500+ points in a day.  But I’m out that day.  Who knows what tomorrow brings?

I recently had several losing trades in a row…trades that I intended to hold for at least 3-5 days, and got stopped out because everything was moving down.  So now I’m just playing very close to shore, in the eddy’s of the river, where the current isn’t strong.  In and out in a day or less.

I wanted to throw up a few charts and give my take on where we are and more importantly, where we might be heading.

Here’s a chart of the S&P 500:

S&P 500 - April: Abandoned Baby candlestick patternYou can see that we’ve had two recent major bounces off of support, once in February, and again recently at the start of April.  I’ve also downward sloping resistance line.  We look to be entering a wedge with a downward sloping top and horizontal floor.

Two days ago, we had an abandoned baby candlestick.  I highlighted it in green.  There it is, a tight doji or spinning top after a huge white candlestick up day.  It was unsustainable.  Look at the ugly red candlestick that occurred on Friday.  I think the next few days we are going to meander a bit downward, but continue along into the point of this forming wedge.

Here is a second chart of the S&P 500:

s&p 500 wedge pattern forming: April 2018I am anticipating tightening movement back and forth into the point of this wedge.  This could result in a period of fewer major, wild swings, but I’m not too optimistic though.  I think we’ll continue to test the lower boundary, weakening it again and again.

Technically, I think we’ve recently reached a top in the market.  We could be forming the right hand side of shoulder of a head and shoulder’s pattern.  I’ll post again in a few weeks and it will be fun (I guess) to check back on my post here to see what happened.  Stay tuned for sure!

In any case, I don’t think things look good.  I think the S&P will fall through that support level and head in the direction of that red arrow.

One more chart, this time I added the trusty Bollinger Bands and MACD indicators:

S&P 500 in April 2018, with Bollinger Bands and MACDHere you can see the same pattern of the S&P 500, but I’ve included Bollinger Bands and the MACD indicator.

Look at how the S&P 500 bounced when it touched the lower Bollinger Band back in February.  Now look again where we have recently touched the lower Bollinger Band again here at the end of March and the start of April.  This time though, I think it’s losing steam.  That first touch back in February was after a sharp decline.  This volatility was new then.  “Let’s snap up some bargains in this bull market” was probably the major thought at the time.  That was a sharp bounce.  Now we seem to be bouncing again, but it is looking more subdued with that recent Abandoned Baby.

I like the analogy of dropping a heavy ball on a rubber trampoline…the first bounce back up is big, the second one smaller, then smaller, etc.  We are at that second bounce.

Look at the MACD at the bottom of the chart.  The S&P was about to have a crossover signal, but that big red candlestick on Friday turned it back.  We’ll see what Monday brings, but I am thinking we’ll quickly retest that major support again, move back up and continue into that wedge a bit more.

Overall, things look pretty weak and in my opinion, we are heading lower long-term.

I’m still going to play swings that are very short in duration until we see where the overall trend is heading.

It also might be time to start adjusting my swing trades from primarily trading positive reversals to negative reversals.  Going short or buying inverse ETFs, or buying puts.  Times are changing right now.  Right now, it’s time to protect your stack and stay safe!

Trade safe & talk to you soon!



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