Here's My Game Plan for Trading What Could Be a Volatile End to 2023

The indexes are set for further gains Tuesday morning, but the lopsided action is becoming increasingly difficult to navigate.

On the one hand, it has been very painful for bears that are trying to fight the extremely strong momentum. On the other hand, technical conditions are extended, entry points are very difficult, and there is strong potential for increased volatility in the waning days of 2023.

An added complexity is that there has been some of the strongest rotation action of the year into small-caps (IWM) , micro-caps, and secondary stocks. This has been an extremely important shift in the character of the market and is triggering hope that the multi-year bear market in small-caps may have finally ended.

It is extremely dangerous to assume that the worst is over, especially since we have positive seasonality, the January Effect, tax planning, and other issues that may cause temporary shifts in the market action. But with interest rates falling and the Fed making dovish noises, there is the potential for a sustained shift.

I'm concerned that we will be hit with some end-of-the-year volatility in the few trading days remaining in 2023, but my focus isn't to short it or sell it but rather to use it to buy more of the stocks that I favor. Like many other investors, I still have high cash levels. However, I want to be very disciplined in putting it to work.

It should be very obvious that fighting momentum, even when the indexes and many stocks are very extended, does not work well. If you are looking for short entries, then it is far better to wait for some weak action to occur and then hope it will gain some momentum that is playable. It is going to be hard because of the extent of the dip buying.

My game plan is to protect gains that I have and wait for better entry points to put money to work. I have no interest in trying to short this market.

At the time of publication, Rev Shark had no positions in any securities mentioned.