The huge price swings that we have seen in recent weeks should not come as a surprise, given the recent uptick in volatility and news flow. The good news for the bulls is that many potential bear flags have been negated to the upside, such as on the daily charts of AAPL and the Russell 2000 small cap index. With the market screaming higher this morning, we have more or less shot straight up from last Wednesday morning’s lows of 1249 on the S&P 500.
As you can see on an updated daily chart of the S&P below, we are running directly into the convergence of the 20 and 50 day moving averages at around 1303-1304. Beyond that, that zone also served as a rough line in the sand during that battleground sloppy range we saw a few weeks ago. Thus, the presumption is that this area will serve as overhead supply, and initiating or holding heavy longs without an initial consolidation is essentially a bet that we are off to the races on the next leg higher in the bull market.
Moving to cash during a correction involves “hearing it from both sides.” One day, the market is down 200 points and bears want to know why you were not heavily short, and vice versa. In reality, price swings and sloppy charts that we are seeing are not the stuff out of which great swing trades are made. All of that can change within a few days of consolidation, but thus far all we have seen in a sharp breakdown early last week followed by an exuberant bounce over the past several sessions.