PM: Wild ride

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
It’s been a wild couple weeks and today’s strong rebound maintained the volatile whipsaw theme.  We recovered two-thirds of yesterday’s selloff in above average volume.  This was the rally’s forth-bounce off the 50dma and the second in less than two-weeks.

The market spent most of March stuck in a trading range between 1540 and 1570.  We broke out to the upside last week, but it was short-lived as we plunged to the lows of the trading range.  Today’s rebound puts us back above 1570 and it’s anyone’s guess what comes next.

MARKET SENTIMENT
The only thing that worked in the last six-weeks was buying weakness and selling strength.  The relentless head-fakes chewed up both bulls and bears trading the breakout/breakdown.  Was Tuesday’s rebound just another head-fake or signs of real strength and support indicating the rally is not ready to breakdown?  For as many people waiting for the pullback, the market is holding up surprisingly well and you have to give the rally the benefit of the doubt here.

Headlines just don’t matter and nothing will stop this rally other than running out of buyers.  I’ve been wary of this market for weeks, but bulls have been just as frustrated by the sideways chop and this turned into a battle of attrition.  Whichever side has larger numbers will eventually prevail.  Can buyers continue showing up in sufficient numbers or are the on the verge of being overrun by sellers?  No matter what anyone thought, they’ve been wrong so far, at some point we will finally have a winner.

TRADING OPPORTUNITIES
Expected Outcome:
Selloffs typically take hold quickly and maintaining these levels for a couple more days increases the probabilities of new highs.  If this market is really running short of buyers we will see the cracks grow wider in coming days.  If buyers continue stepping in at these levels it shows there are far more of them left than anyone expected and the inevitable pullback is still a ways out.

I am blown away by the resilience of the bull and how decisively they continue buying dips.  Obviously this cannot last forever, but bulls continue holding the upper hand until we see clear signs this rally is breaking down.  Right now the line in the sand is 1540.  Break though this and the selloff is finally taking hold.

Alternate Outcome:
Recent volatility is chasing off weak holders as effectively as a bigger selloff would.  Six-weeks of choppy sideways trade is refreshing the market like a 5% pullback would.   Yesterday’s plunge sent traders running for cover but lack of follow-on selling today shows holders are still willing to hold and buyers are still willing to buy.  Holding 1570 through Thursday shows new highs are likely.  If the market adds to its gains on Wednesday, bulls are still in control of this market.

Plan your trade; trade your plan