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It’s now over a month since the U.S. and Israel kicked off a war in Iran. Since then, the major indexes have been floundering.
There are logical reasons why investors have become so bearish. Oil has been trading above $100 – an unsustainable level without pushing the economy into recession.
Even if hostilities ended immediately, damaged (or destroyed) oil infrastructure will hamper oil supply for months or even years ahead.
Higher oil prices also mean higher inflation, which impacts interest rates. No matter what Jerome Powell said at the Federal Reserve’s last meeting, rate cuts may be off the table. What’s more, rate increases could even be in the cards. That would be a real blow to stocks with high valuations.
The headwinds for the stock market in 2026 are real.
But despite plenty of reasons to be bearish, you don’t want to be locked into any single view. Because one thing I’ve learned in my 40-plus years of trading is that markets have a way of surprising you…
Many people assume they have to have a directional view — markets are either heading up or down.
But sometimes markets trade within a range. By holding a binary “bullish or bearish” view, you’re going to miss out on trading opportunities when stocks meander back and forth.
The other catch is that once you’ve determined your directional view, it’s easy to become emotionally attached to that view. You’ll lock in decisions based on that rather than watching how the market action is actually unfolding.
That becomes an even bigger trap when headlines drive the stock market, as we’re seeing now with the Middle East war. If you’re not careful, you can struggle to enter a bullish trade amid the rising negative sentiment.
But oftentimes the best (and quickest) profits are made by going against the prevailing wisdom.
So instead of picking a particular view, here’s what I advise…
Rather than assuming a stance on market direction, you need to focus on identifying strong chart setups. Pay attention to key levels that have tested and held support or resistance multiple times. Or look for evidence that a stock has become oversold or overbought.
Even the strongest trends experience plenty of countermoves along the way. In a rally, folks decide to take their profits… or short sellers think the stock’s valuation is way overstretched and look to take advantage of a pullback. Similarly, in a bearish market, bargain hunters will rush into a stock, often causing a sharp rebound.
So even when the market is trending strongly, you can find profitable trades going both directions.
Oftentimes, I’ll play a stock back and forth as it changes direction. For example, in early March, I recommended a gold put option trade that handed us a 107.6% gain as the precious metal fell. A couple of weeks later, we profited 12.9% from a gold call option position going the other way. I don’t care which way gold moves next – we’ll simply position ourselves for a win.
Remember that as traders, we don’t get paid for having an opinion about the market direction. Instead, our payday only comes when we identify a strong trade setup and successfully exit it for profit.
Get that straight, and you’ll be a step ahead of most traders.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
