What Wednesday’s Action Proves
I’m
going to need to keep it short today. Today’s market action was very
interesting. The major indices all trended lower for most of the day. The Dow,
S&P, and Nasdaq all undercut their recent lows. The Russell 2000 didn’t quite
take out Monday’s lows. At around two o’clock, buying entered the market and
began pushing it higher. The rally seemed to gain strength as the afternoon
wore on and the indices all finished very close to their highs. Volume came in
quite heavy as well. The big question now is whether this high volume reversal
day will provide a spark to rally higher.
Maybe…but I doubt it. This
still looks like an oversold bounce off of key technical levels to me. While
the VIX was making new 20-day highs, the S&P was testing its 200-day moving
average. Yesterday’s weak rally did very little to work off the oversold
condition in the market.
As far as I’m concerned,
today’s bounce doesn’t prove anything. There are still far more shorts setting
up than longs. Any rally right now would likely have great difficulty due to
lack of potential leadership. While we may get some more upside follow-through
in the next few days, I still believe the path of least resistance remains
down. Remember though, as we’ve seen over and over this year, things can change
very quickly. An O’Neil follow-through day accompanied by decent breadth could
go a long way towards changing my opinion. For now, I still think the short
side is where the easier money will be. Until the trend is more certain, I
would suggest traders not get overly aggressive.Â
If you don’t have anything
triggering, then don’t force the issue. Let the market come to you. Spend
“down time” wisely. Read, study, do research, or relax. Just don’t get to
antsy and overtrade in a high-risk environment.
Good Trading,
Rob