It Is Just A Bounce-So, Let’s Not Start Kissing Each Other

Random Thoughts

After nearly a week of trading lower, the market bounced.

Let’s not start kissing each other just yet though.

The Ps are still below where they were last Friday. They still look like they have the potential to form a Bowtie down. This could be a powerful sell signal since the index is just coming off of all-time highs. Why? Well, when a market makes new highs, anyone long is happy happy happy. However, when a market begins to tank, the bliss quickly wanes. This is especially true for the Johnny Come Latelies. These players tend to be the last in and the first out. They are the “fast money.” And, their selling can exacerbate the slide.

There’s nothing magical about the 50-day moving average but it is well watched and worth watching. It can help to keep you on the right side of the market (especially when combined with “daylight”—I’ll flesh this out and Thursday’s show). So, for those keeping score, the Ps are still below da fidy.

Although the Quack ended off its best levels, it still had a decent day nonetheless. It ended up nearly ¾%. So far though, it too only appears to be bouncing.

The Rusty was the big winner. It managed to gain nearly 1 ½%. Unfortunately, it too only appears to be—wait for it–bouncing. Even if the rally continued here, it has quite a bit of overhead supply (aka resistance) to overcome.

Bonds bounced but it appears to be just that, a bounce. They’re still down nearly 15% YTD (basis the TLT) and remain in an accelerated slide short-term.

I’m not seeing a lot of shorts setting up just yet, but on a continued bounce there will likely be of plethora of setups in the recently mentioned previous high fliers such as Biotech, Retail, and Health Services. Again, there exists the possibility of “the bigger they are, the harder they fall.”

Yet again, about the only area that looks like it has potential at this juncture is the recently mentioned Metals and Mining.

So what do we do? The market bounced and so far, I think it is just that-a bounce. For those looking to anticipate a potential rollover, keep an eye on the index ETFs. Make sure you wait for an entry though. Again, I’m not seeing a lot of individual shorts just yet but I would imagine this will change really soon. Therefore, get ready to get ready. Other than the aforementioned M&Ms, I’m not seeing anything worthwhile on the long side.

Futures are soft pre-market.

Best of luck with your trading today!

Dave