Happy Tuesday, traders…
Jeff here.
This is a critical time for the markets.
Over the weekend, Iran launched drone missiles at Israel.
The attack proved non-lethal as most of the drones were destroyed before hitting their targets.
President Biden asked that Israel be cautious in its response. Even so, Israel has said it plans to retaliate. What happens next is anyone’s guess.
Early Monday morning, it looked like some of the fear had subsided … but not for long.
The SPDR S&P 500 ETF Trust (NYSEARCA: SPY) opened green, then absolutely dumped, down 1.2% at the time of writing.
Meanwhile, the CBOE Volatility Index (VIX) has been soaring, up 22% in the past week.
All this to say, the (so-far) unstoppable bull market of 2024 is starting to face some serious headwinds.
A three-headed monster of market-moving catalysts is forming (more on that later)…
And how you approach these catalysts over the next few weeks could make or break your entire year.
With that in mind, let’s get to my Tuesday Market Outlook…
The Three-Headed Monster of Market-Moving Catalysts
I’m currently seeing three major catalysts with the potential to rock the entire stock market in either direction:
Interest Rates and Inflation
Now, we need to talk about inflation and interest rates, which are ripping…
Inflation is still at the forefront of a lot of things.
Economic numbers every morning can turn the market on at its head.
We saw how bearish the price action was last Thursday, April 4, when Fed official Neel Koshkari made comments suggesting that the Fed may not cut rates at all in 2024.
The S&P 500 and Nasdaq dropped more than 1.2% and 1.4%, respectively, in their biggest single-day declines since March 2023.
This is all the evidence you should need to be watching interest rates closely right now.
Geopolitical Tensions in the Middle East
Then, we have separate geopolitical and macroeconomic factors in the Middle East.
This is where traders start pretending like they’re experts in foreign policy.
A lot of people think that they know what’s gonna happen next…
But I’ll tell you a little secret — nobody knows what will happen next.
I don’t think the White House even knows what’s coming 48 hours from now.
They have an idea, but they don’t know exactly how it’ll all work out.
That doesn’t mean we shouldn’t be tracking this situation closely, because we should.
That said, we can’t predict the outcome — so don’t try.
Earnings Season
Third, but not least, we have earnings season starting back up…
I expect to see volatility at an elevated pace for the rest of this month.
Don’t be shocked when face-ripping short squeezes are followed by complete pukes from the opening highs — head-fake price action.
WARNING: When you’re in these types of tapes, buy red stocks and short green ones.
I think the VIX stretches north of $20, maybe even up to $30, at some point in the next 14 days. (Do with that what you will…)
An elevated VIX means trading options during earnings will be more expensive, so my go-to strategy is the ‘Earnings Sympathy Play.’
Instead of direct bets on the company reporting earnings, I hunt for deals in correlated names.
This allows me to grab more affordable options while still riding hot-sector moves.
Those are the three huge catalysts I’m watching right now.
And they all lead me to one major piece of advice for you…
Shrink the Game
When you come into this kind of market — one with huge external news flows happening on a 24-hour cycle — shrink the game.
In other words, you should reduce your holding times, position sizing, and watchlist.
In quicker, out quicker, in smaller sizes — that’s the name of the game right now.
It’s easy to get emotionally overwhelmed in a market like this. When the news cycle is moving this quickly, it can be difficult to follow everything diligently.
But missing one key piece of news in this tape could make you less efficient, less accurate, and more prone to human error.
That’s why you want to shrink the game, protecting yourself from one bad decision that leads to a brutal loss.
Some traders will try to be heroes in this tape and get even more aggressive as volatility is ramping.
But make no mistake — the vast majority of those traders will get destroyed.
As TLC famously sang, “Don’t go chasing waterfalls.”
Focus on a small handful of stocks you trade the best — the ones that consistently make the most money — and you’ll have more than enough opportunity to profit in those names.
Happy trading,
Jeff Zananiri
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