Why This Isn’t Done Yet

S&P500 daily at end of day

End of Day Update:

Stocks exploded higher for a second day. Some claimed headlines out of Australia, Europe, and the oil market were the catalyst for this rebound, but the market’s stubborn resilience at 2,000 was telling us days ago that it wanted to go higher. When prices refuse to break down on bearish headlines, it doesn’t take much to send us higher.

Volume was well above average as shorts were squeezed when we crossed technical resistance at 2,020 in early trade and broke above the 50dma late in the day. Any short with disciplined stop-losses was sent scrambling by this strength. We closed just a hair under 2,050 and this will be the next meaningful level the market needs to summit if this rebound is to continue. But the bigger test will be the third attempt at 2,060, a level two previous rallies stalled at in January.

Sentiment remains fairly bearish. While today’s rebound softened some of that pessimism, the 70-point rebound has been so swift, few have had the opportunity to buy back in. That means there is still a huge pool of recent sellers that need to get back in if the market keeps going up. Reactive sellers become reactive buyers, and the volatility continues.

An increase in volatility is a common symptom of changes in trend and I remain wary of this market over the medium-term, but as a swing-trader is hard not to exploit this bounce for a quick buck. I’m not sure if we will set new all-time highs, but breaking 2,060 and triggering another round of breakout buying and short-squeezing seems likely.

Jani