More downside incoming?

StatsEdgeTrading

Welcome back to the midweek market wrap-up! Today, we’ll dive into stocks, crypto, and forex, with a special focus on last Friday’s sell-off and what it could mean going forward.

If you missed my Wednesday update, I discussed the possibility of choppy action during this time of the election season. It’s important to note that market uncertainty typically spikes between September and November, leading to volatility. Historically, we see this regardless of which side wins the election, as investors and institutions hold back on major moves until they have more clarity.

Friday’s Sell-Off: What Happened?

Friday’s sell-off was broad and affected nearly all sectors. The S&P 500 (SPY) dropped, as did semiconductors, financials, and other major sectors. Even tech-heavy names like Nvidia and SMCI showed weakness. This wasn’t isolated to large caps, as the equal-weighted S&P 500 (RSP) also took a hit, signaling that the sell-off was across the board.

The question now is, are we entering a prolonged downtrend, or will the market simply bounce back within the expected choppy range? Historically, this period of uncertainty can lead to range-bound action, where the market oscillates between highs and lows before making a decisive move post-election.

How I’m Trading the Chop

Given the market’s range-bound nature, I’m focusing more on buying dips and selling rips, rather than trying to chase breakouts. For example, one of the trades I took before Friday’s sell-off was on MNKD, which came from our pullback trading algorithm. This system looks for stocks that dip to key levels and signals when it might be a good time to buy. I bought MNKD as it pulled back into its support level on Friday and am now watching it for a potential bounce.

This approach works well in choppy markets, where trying to hold positions for long breakouts can be risky. Instead, I’m aiming for quicker entries and exits, taking advantage of smaller moves within this range

What to Expect Moving Forward

As we move closer to the election, I’m expecting more choppiness. We could see more sharp sell-offs followed by quick bounces, staying within the range. If the market breaks to new highs, I expect it to be short-lived, potentially trapping longs before pulling back again.

Once the election uncertainty clears, I’ll likely shift back to more breakout and trend-following strategies. But for now, I’m leaning on the pullback and revision-to-the-mean strategies that have historically performed well in these environments.

If you want more insights like this, check out StatsEdge Pro, where I share the output of my algorithms, trade ideas, and run live Q&As for members. You’ll also get access to my curated watchlists and more in-depth analysis on how to navigate markets like these.

Thanks for reading, and as always, get away from the screens and stay disciplined!