A Trap Set Twice
Hey team, another week has concluded, leaving many traders asking, 'What happened' during last Friday's session?
Let's reflect on our comments from exactly one week ago and see what's next!
Impact Snapshot
FOMC Meeting Minutes - Wednesday
CPI Inflation - Thursday
Unemployment Claims - Thursday
PPI Inflation - Friday
Consumer Sentiment - Friday
Key Earnings: JPM 0.00%↑ PEP 0.00%↑ WFC 0.00%↑ BLK 0.00%↑
Macro Viewpoint
The S&P 500 index increased by 0.2% this week. The rise was mainly attributed to a stronger-than-expected September jobs report, which helped balance an otherwise cautious start to October.
In the third quarter, expectations of a Federal Reserve rate cut in September fuelled much of the S&P 500's gains.
With the cut now implemented, investor focus has shifted to upcoming economic data and corporate earnings, which may influence decisions at the Fed's November meeting.
The labor market data for September exceeded expectations, contributing to the positive market sentiment on Friday.
The U.S. quarterly earnings season is set to begin next week. Many investors are optimistic that corporate results will support the high valuations seen in the stock market, which is approaching record levels.
Next week will also feature important economic data releases, including the September consumer price index (CPI) and producer price index (PPI).
The Setup We Warned About
What might have looked like a very appealing open on Friday, ended up being the perfect trap. One that we exclusively warned about on our market plan before the market open.
Exactly one week ago, we’ve shared this quote on our Substack named “Market edge and nuances”. (Read it here)
Not only did that exact same instance happen during last Friday's session, but the market also retraced the same swing exactly at the same pivot, the settle.
So much about trading has to do with understanding market nuances and paying attention to the charts rather than reacting to emotional triggers.
Short term, undercapitalized traders absolutely love piling up on "bullish news" and driving the market higher. What they don’t understand is the amount of risk they expose themselves to.
It doesn’t matter what strategy you use to become profitable. There are long-term profitable traders using just EMAs, and that’s it. The only thing that matters is risk.
How much risk does it take to pile up on this swing high without expecting a correction? What is my expected profit target? Is this move driven by emotional small hand traders or serious money buying at 8:30am?
Context matters.
Entering a trade doesn’t take time; preparing and waiting for it should.
