The S&P 500 finished Wednesday down 0.4% after the monthly inflation report dipped to 5%, the lowest reading in nearly two years.
Stocks reflexively rallied on the news of falling inflation. However, the midday strength evaporated when the Fed’s latest meeting minutes revealed they were still contemplating another rate hike at their next meeting.
The good and bad cancel each other out and the market finds itself stuck in the middle of its latest consolidation near 4,100 resistance.
At this point, it would be hard for either bulls or bears to claim recent price action supports their arguments. The March rebound has clearly stalled near 4,100 resistance as prospective buyers grow leery of these elevated prices. But at the same time, bears’ widely predicted collapse from “too high” is nowhere to be found.
At this point, it feels like the market is settling into “just right” as it waits for the next meaningful data point. Stock prices would have reacted far more aggressively if either of Wednesday’s headlines were a surprise. Instead, the market expected inflation to cool modestly and for the Fed to contemplate another rate hike.
The lack of a breakout or a breakdown is frustrating the people who are trading in anticipation of these things. As I’ve been saying for a while, this is a range-bound market and that means lots and lots of reversals. If a person has profits and they are not collecting them, those profits will be gone in days, if not hours.
Savvy traders know this is the environment to stay nimble and take profits early and often. The next big directional trade is coming, but this isn’t it. If you are not taking profits when you have them, you will end up with a pile of losses.
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Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.