I’m a bit of a broken record but look at this chart. Is this something you’d trade right now (if you are a momentum or trend trader)?
Yes, I’m talking about the chart of the S&P 500. The market has largely been unable to latch on to a bullish catalyst to propel the market to new, higher highs, even after the election of a pro-business, pro-tax cut, pro-reduce-government-spending, pro-deregulation President.
I’m not saying we won’t get to the higher highs – I’m still seeing a SPY making it up to the $625-$650 range before the end of the year, but right now this chart stinks! And I’m not just picking on the S&P 500. The Nasdaq, Dow Jones Industrials, and Russell 2000 aren’t much better.
A Market Stuck in Neutral
For months, the market has been flatlining, bouncing between support and resistance without making any real progress. Every rally stalls, every dip gets bought up just enough to prevent a breakdown, and traders are left chasing shadows instead of real trends.
The reason? There are no true bullish catalysts right now.
- The Federal Reserve refuses to cut rates, keeping liquidity tight.
- Earnings season hasn’t delivered enough upside surprises.
- Today’s CPI report could dictate the market’s next move.
Inflation data is the key event now because it will tell us whether the Fed will stay on hold longer or finally start leaning toward rate cuts. It could also be an early indicator of how a second Trump presidency might impact inflation, especially if tariffs and spending policies push prices higher. If CPI comes in hot, expect rate cut expectations to be pushed out further, which could keep stocks stuck in this sideways grind—or worse, send them lower.
Watch for the Consumer Price Index year-over-year numbers and the Core (excluding Food and Energy). The consensus is that the numbers will be flat to lower, indicating prices are stabilizing, but not coming down.
How to Trade a Sideways Market
With the broader market stuck in limbo, this isn’t the time to chase breakouts. Instead, shift your strategy to match the market:
✅ Find Stocks with Strong Relative Strength
Even in a choppy market, some stocks outperform. Screen for high Relative Strength (RS over 70) to find stocks that are holding up well.
Examples:
- Energy stocks tend to hold firm when inflation expectations rise.
- Consumer staples offer stability when the market lacks direction.
- Healthcare can provide defensive plays.
✅ Trade Range-Bound Stocks
Since breakouts aren’t happening, look for stocks that bounce between support and resistance. These setups allow you to buy low and sell high without waiting for a major trend shift.
Examples:
- McDonald’s (MCD): Historically stable, tends to trade within a tight range.
- Coca-Cola (KO): Defensive play that works well in slow markets.
✅ Watch CPI & Fed Policy for a Market Catalyst
Right now, today’s CPI report is the biggest wildcard. If inflation is lower than expected, the Fed may soften its tone—potentially leading to a market breakout. But if CPI runs hot? Expect more stagnation or even a downside move.
Until a clear trend emerges, the best trades will be found in strong individual stocks, not the broader market.
Bottom Line
Right now, traders are staring at a major trap—a chart that looks like it should be ready to move but instead keeps grinding sideways. The worst thing you can do in this market is force trades in something that isn’t moving.
Instead, focus on relative strength stocks, range-bound trades, and income strategies with options until we get a real catalyst. Whether that comes from today’s CPI report, a shift in Fed policy, or a macro surprise, the key is to be patient and trade what’s actually working.
🚀 Stay nimble, stay disciplined, and don’t fall for the trap.
