Don’t count this rebound out just yet

Free After-Hours Analysis:

The S&P 500 stumbled at the open following the long holiday weekend. Coronavirus headlines were actually fairly encouraging with infection rates moderating in a lot of areas. Unfortunately, much that optimism was already priced in during last week’s 12% surge. Now that we are at the upper end of the recent range, the market requires even better news to keep pushing higher and today’s headlines didn’t cut it.

That said, after the morning’s selling ran its course, the market held up surprisingly well. I’ve been one of the countless cynics that are suspicious of this market’s nearly 30% rebound from last month’s lows. But despite the widespread criticism, this market keeps hanging in there. And today’s price action was no different. Rather than devolve into a mass of panicked sellers, supply dried up in late-morning trade and we spent the rest of the day climbing out of that hole. While prices still finished in the red, I actually count this as a win for the bulls. When owners were given the invitation to sell, they shrugged and bought the dip instead. How much longer this lasts is anyone’s guess, but for the time being, the market is still acting well and it still demands our respect.

While odds are high the market will stumble and test support at some point, it doesn’t seem like we are at that point yet. Maybe it finally happens tomorrow, the day after, or even next week. But either way, we need to be careful shorting a resilient market. Lately, I’ve been day-trading this market because I’d rather not be caught on the wrong side of a 3%, 4% or even 5% opening gap. There is still plenty of money to be made trading during regular hours and most importantly, this allows us to exercise prudent risk management by preventing prices from leaping over our stop-losses in the middle of the night. While I might miss some profits when the market gaps in my direction, inevitably, I am also missing those days when it would have run over me instead.

I don’t need to make all of the money, just the easier, lower risk stuff. I’ll leave everything else to the gamblers. If you want to read how I’m trading this market, check out last week’s free posts.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM