After yesterday’s huge bounce, some digestion of that move should be expected. We are seeing what looks to be a fairy orderly pullback this morning, and the S&P 500 continues to hold back above the key 1220-1230 area. Make no mistake, though, that this market still has plenty more to prove in terms of improving its overall health and offering more quality trading setups. Just when the headlines seem to get as bad as can be, the “invisible hand of the market” often arrives on the spot to buy beaten-down stocks at a steep discount. Whether we are seeing that take place here, in light of the doom and gloom out of Europe and all over the world in recent months, remains to be seen. However, you can bet that if we truly are transitioning into a sustained uptrend, then by definition you will have plenty of time to profitably trade with an edge.
It is also important to keep in mind that we remain in the holiday season, with plenty of institutional traders closing up shop for the year already. Thus, I am more inclined to see if the traditional end of year rally materializes, rather than making a huge jump to conclude we are off to the races.