🚨I’ll be live at 3:30 p.m. ET with Nate🚨
It’s Wednesday so we’ll do another “Build a Trade” session and more [tap to join us for Closing Playbook]!
There’s a number most traders don’t want to hear right now: 3.5% to 5%. That’s the size of a healthy pullback we should expect regularly in any market cycle. And yet the market’s recent surge has made even normal volatility feel unlikely to many participants.
Here’s the reality that often gets forgotten during strong rallies — we typically see two to three pullbacks of 5-10% in a year, plus one larger correction in the 10-20% range.
That’s not a bearish forecast. That’s simply how the market breathes.
One reason this matters now is that certain technical signals can create a false sense of stability. The EMA8 (8-day exponential moving average), for example, is still sloped sharply upward, which keeps price drifting higher even during minor touches. When momentum stays elevated like this, it can mask the early phases of a broader cooldown.
At the same time, consumer-facing earnings like Domino’s (DPZ) are starting to show stress. When customers hesitate to pay for inexpensive items like a cheap pizza, it’s often an early sign of pressure in the broader economy.
Add rising labor costs and the growing shift toward automation — kiosks replacing workers in many chains — and you have an environment where margins tighten and business models shift even before the market absorbs the impact.
We’ve Already Had One — Why Not Another?
The recent sell-off in February and March added up to roughly a 10% correction, which checks the big-move box for the year. But that doesn’t close the door on further volatility. If we see another 5-10% pullback from here, it would fit perfectly within historical norms, especially after a run this extended.
The more interesting development isn’t price — it’s behavior under the surface. Market makers have quietly begun widening their spreads and pulling back on risk. When spreads shift like this, it’s usually an early sign that liquidity is getting more cautious.
They’re making it harder to find trades that properly compensate for risk because they’re adjusting their exposure ahead of potential volatility.
I’ve been digging for opportunities — put spreads, condors, butterflies, anything with a reasonable payout — and nothing is offering enough reward to justify stepping in aggressively.
When the pricing doesn’t support the trade, the professional move is to sit back and not force a sub-standard trade. That’s why I’ve shifted from a slightly bullish stance to fully neutral, with most exposure in cash until the risk and reward reset.
The Early Warning Signs Are Already Here
Between technical momentum drifting upward, consumer cracks appearing and market makers tightening their risk budgets, the setup for a normal pullback is already forming. None of this is catastrophic — it’s simply the transitional phase where markets prepare to digest their prior gains.
If the next phase is choppy consolidation — which is becoming increasingly likely — income becomes the priority. Sideways markets reward traders who take premium rather than chase direction, especially when price grinds within a range as the market absorbs its own momentum.
Understanding these conditions helps you recognize when to step back, when to lean in and when the best trade is patience. A 5% pullback isn’t something to fear — it’s something to plan for.
Kane Shieh
Kane Shieh Trading
Follow along and join the conversation for real-time analysis, trade ideas, market insights and more!
Important Note: No one from The TradingPub team or Kane Shieh Trading will ever contact you directly on Telegram.
*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. Have You Heard About This Loophole In The Options Market?
I recently shared a “mistake” in the options market…
It gives us an insane edge in finding stocks about to break out!
