Schaeffer's Trading Floor Blog

With Europe Still in the Driver's Seat, How to Navigate the U.S. Market

The stock market has developed a relatively predictable pattern for swing traders to exploit

by 5/14/2012 2:54 PM
Stocks quoted in this article:

Despite a better-than-expected earnings season for U.S. corporations amid a backdrop of persistently bearish sentiment, news from Europe continues to be the primary driver of price action among domestic equities. Seemingly every morning, market participants awake to a new round of bad news, and the market gaps down on the opening bell.

Below is a chart of the price action of the SPDR S&P 500 ETF Trust (SPY - 134.76). As you can see, five of the last six sessions have resulted in nearly identical price action -- a gap down from the previous day's closing value, some price discovery near midday, and then a close above where the market opened.

 SPY price chart

Many European markets close at 11:30 a.m. Eastern, and this has typically been met with buying in domestic markets. There's no guarantee that this price pattern will continue -- but until markets can break out of their current range, this process of buying a lower open and selling the close should be repeated by active traders until the environment changes.

The downside of this type of action is that swing-trading indexes in such an environment can prove difficult. Picking individual stocks remains the preferred method of investing for those with time horizons longer than a few days.

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