We have written many times about tracking the changes in the market’s character as a signal for a change in one’s trading approach. The change over the last 2 weeks was the most dramatic seen in years. The surge in volatility created a huge number of trading opportunities. Many market players are facing difficulty in adapting to the change, which causes volatility levels to heighten even more.
One of the interesting things yesterdays was the hot consumer inflation numbers – which justified the rationale behind the latest price correction – helped create buying rather than selling pressure. We’re back to the frame of mind of being afraid to “miss the boat.”
On a technical level, it’s hard to believe that the rebound over the last 4 trading days can now continue in its last leg of its upward V movement. The S&P 500 is still trading significantly beneath the highs achieved in January, and there’s a lot of resistance now hovering over the market. With that said, the bears were taken entirely off-guard yesterday, running for their lives, covering their shorts in mid-flight. Will the V movement have lasting power? Does it have the power to push the market to where it was in January?!
We have big doubts about that, especially seeing that the V movement would require another large upward surge. The S&P 500 returned yesterday to record gains on the year, but it is still trading beneath its 50-period EMA and needs to rally another 6.3% to hit its all-time high, after having already bounced back 6.7% from the low recorded last Friday.
In our estimation, the positive movement seen over the last few days cannot persist very long, but in the meantime, it’s advisable to stick to the strength as much as possible, when it works in this manner. If the volatility again rears its head, you have to be ready – in the eye of the storm – to sell, despite the market’s strength.
Daily Summary: The Dow Jones rose 1.03%, the S&P 500 jumping 1.34%. The NASDAQ tacked on 1.86%.
Thursday: CSCO, TRIP, TEVA, MAR, NTAP, PRGO, SHOP, ZTS
Have a great trading day!