Wednesday, 30 October 2024

The Waiting Game: Why the S&P's Not Moving Much This Week

And how the Fed and the election might shake things up soon
 
   
     

If you’re following the S&P right now, you’ve probably noticed it’s been flatlining. That’s not a surprise, and as I mentioned yesterday, I don’t expect it to change much this week or even early next.

The markets are in a holding pattern, with most investors keeping their powder dry until we get the big news from the Fed’s decision next Thursday.

Next week’s Federal Reserve announcement will likely shake things up. But while there’s usually a quick reaction after any Fed meeting, the real, lasting moves tend to come the following week, after traders have had the weekend to digest the news.

So don’t be surprised if you see a quick jump or dip when the Fed speaks Thursday afternoon, followed by more of the same sluggish movement for the rest of the day and Friday.

By Monday, though, we might start to see a sustained direction emerge as the market processes the implications of whatever decision the Fed makes.

The Election Factor

And then there’s the added wildcard of the upcoming election.

If the outcome isn’t clear right away or drags on, we could see volatility spike as investors get nervous about what’s to come.

One thing that always scares markets is uncertainty. And an uncertain election outcome result won’t sit well with the markets, which could — by itself — trigger some wild moves in the weeks that follow.

Beware of Boredom Trades

Weeks like this, sometimes the best thing  you can do is sit on your hands and avoid placing trades “just because.”

But sitting on your hands and waiting isn’t easy, especially when things feel slow.

Lots of traders fall into the trap of what I call “boredom trades.” They jump into setups they wouldn’t usually touch because they feel like they should be doing something. But that’s exactly how you get eaten alive by time decay in options trading.

For those trading options on big-name, stable stocks (or “blue chips”), time decay is your worst enemy in environments where the market is at a standstill like we have now.

Options lose value every day that the stock doesn’t make a big move — and that can quickly drain your account if you’re betting on big swings when there’s no reason to expect them.

Where’s the Action?

That said, there are always stocks “outside the norm” with enough movement to trade on, even in slow markets.

If you’re looking for action, there’s no shortage of smaller companies or niche sectors that might be moving despite the gridlock in the broader market. Just don’t expect much action from blue-chip stocks this week.

And no, I won’t be trading any of lesser-known stocks that might be moving. I’m just pointing out that they exist.

So, patience is the name of the game right now. Hold off until there’s a clear setup or until the news actually breaks.

— Geof Smith

P.S. They say gold is a safe haven. And traders must be feeling pretty scared, because the one thing that has been consistently on fire is gold. Here’s how I’m playing it without long term exposure.
   
 
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