The start of something bigger or more of the same?

Free After-Hours Analysis

The S&P 500 opened with modest gains, but that was as good as it got and prices quickly retreated back near breakeven, where they remained through midday. Unfortunately, the situation got even dicier after Anthony Fauci testified to Congress that he felt many of the states’ reopening were acting prematurely given federal infection and testing guidelines. Any threat to the recent wave of economic reopenings put investors on the defensive and stocks ultimately finished 2% lower following an acute wave of selling into the close.

Stocks have been trading really well the last few weeks, rebuffing every bearish headline and they continued hovering near the rebound’s highs despite the economic carnage surrounding us. Did today’s late-session selling change anything? Or is this more of the same and the rebound will be back to normal tomorrow?

This is one of those half-full, half-empty situations. How you feel about this market determines how you view today’s late swoon. Bulls think this is more of the same and are not worried. Bears are hoping this is finally the long-awaited pullback.

Which side is right? There are legitimate cases for both outcomes and unfortunately, only time will tell. That said, just because we don’t know what happens next doesn’t mean we cannot come up with a sensible plan to trade it. We know this market will either breakdown or it won’t. If it breaks down, we short it. If it doesn’t breakdown, we don’t do anything. Pretty simple, eh?

Pick a level tomorrow, maybe the market’s open. If prices fall under that mark in the first 30 minutes, short it with a stop just above the early highs. On the other hand, if prices rally above the opening levels, don’t do anything unless prices retreat under those early levels. That’s where go short with a nearby stop.

If this market is finally breaking down, it will be spectacular. If we get anything short of spectacular Tuesday or Wednesday, then the status quo remains in effect and this is still a strong market. If there is one thing bears learned over the last few weeks, we definitely don’t want to short a strong market.

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