We have a nice relief rally going so far this morning, with the indices up over 1.25% across the board. Corrective markets are notorious for fast and furious snapback rallies, but usually only after making the plethora of bottom-callers look like fools first. You can almost hear the sighs of relief from longs who have been trapped over the past few months, as they did not have to wake up to another red open or downside reversal. At the same time, cocky bears who had criticized those not all-in short are suddenly being fed a large portion of humble pie. In hindsight, it is very easy to claim that you caught each elusive top and bottom in a volatile market. In practice, though, most traders will lose significant amounts of capital during these indecisive times in the market. Thus, protecting capital is still the top priority here, even as exuberant as this rally appears to be.
If you have defined yourself as a technically-driven swing trader like myself, then the key is allowing the market to properly set up for another sustained uptrend. In the interim, these corrective markets may offer some quick opportunities for trades, but the risks are still elevated. Accordingly, any positions taken should be kept smaller than usual and on a tight leash, with a heavy cash position to buttress the wild swings that are to be expected. If the bulls can hold these gains, I may very well put out some tester longs. Overall, though, you can be sure I am going to let the market show me more signs that it has actually bottomed first before I throw all of my capital down onto the table.
I will be back some with price levels to observe later this morning.
We’re still at the mercy of news from Europe… Who knows what the next piece of news will be…