Another 1%-plus opening gap this morning is adding to the frustration of a great many traders, as the headlines continue to have an obvious effect on price action. As a general rule, I believe it is not the news or data that matters with respect to the stock market, but rather the reaction by equities to said news that tells the story, though there are exceptions here and there with totally unexpected events. Over the years, seemingly great news has, at times, been sold aggressively, while terrible news being bought is often one of the hallmarks of a bull run.
In the current market, the past two session have illustrated that the market can slide down a slippery-slope quickly even after making several weeks of sound technical progress. Today, the opening gap is to the upside, and the bulls have an opportunity to defend the key prior breakout points that I discussed last evening. We should have a better idea by early-afternoon as to whether this move will be faded, but for now these opening gaps are making it awfully difficult to swing trade heavily with conviction. In fact, one of the common characteristics of a healthy, trending market is muted volatility. Obviously, with 1% gaps in either direction commonplace to open most sessions, there is more work to be done in terms of mitigating the uncertainty that persists amongst traders.
