The market is up +270 points! Oh my goodness, it’s such a big day! No. It’s not. +270 points is nothing. The bounce was expected.
Here’s the problem: We lost 9% yesterday, the 4th largest down day in history, and we managed to gain back “only” 4% on the SPX (or 3.3% for the DJIA). I couldn’t be bullish unless the market made a dramatic turn in sentiment and nearly canceled out yesterday’s losses. I’ll need to see another +4-5% up day tomorrow, to even give the market a chance.
The low volume, itself, is no reason to rejoice. In addition, we had another WTF pattern (but to the upside) in the last hour. Even that rally was littered with deep, irregular corrections on the way up. To be fair, today is considered a neutral or consolidation day. I hold onto positions in the direction of the prevailing trend, which means that I remain short.
Today’s +270 point gain didn’t bother me one bit. I’m still up +16.4% (incomparable to the +27% of yesterday) which gives me a large buffer to the volatility and, like many of you, I became numb and accustomed to the 3-9% days we seem to be getting every day. 270 point days, up or down, are no longer “big” days, they’re “normal”. Do you remember the times way back when 100 points was such a big deal? Those times are gone. Welcome to the world of eye-popping volatility.
My timeframe is also to swing these stocks, therefore I keep my plan in mind, unless something drastic happens tomorrow. The swings may frighten many of you, in which case, you should not trade. Many losses are incurred within a neutral trading range. Exercise some patience and discipline, or just sit on your hands and stay in cash.
Make note of the support and resistance areas for tomorrow. If the market does breakout from it’s range, it becomes an uphill battle that requires some type of positive catalyst. The rally must be strong and continuous without deep sell offs. If we breakdown, that will be confirmation of retesting the lows. Either way, monitor the situation with hawk eyes.