When to get worried about this market

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The S&P 500 rallied for the third day in a row and continues recovering from last week’s devastating 6% tumble.

One large bearish collapse followed by three smaller bullish responses. Which signal is legitimate and which is misleading? That’s the question everyone wants the answer to.

Thursday’s crash was the worst day since the original Coronavirus meltdown. What started as a disappointing open quickly morphed into a mad dash for the exits. But as quickly as the selling started, it exhausted itself and stocks have already recovered a big chunk of those shocking losses.

If there is one thing we know about crashes, they are breathtakingly fast. No one has time to think and if you pause even for a second, you get run over. That’s what occurred Thursday. But rather than extend the panic selling the runaway selling like we saw back in March, the subsequent price action has been far more orderly and thoughtful.

Few things calm nerves like rising prices and the last three days of gains has a lot of people feeling better. Last Thursday’s second thoughts are quickly fading from memory and confidence is returning.

As I wrote previously, until further notice, we give this rebound the benefit of doubt. Trends continue countless times but they reverse only once. Going strictly off the probabilities, last week’s dip was far more likely to bounce than it was to continue. And that’s exactly what we are seeing.

And as long as this market remains above 3k support, we continue giving it the benefit of doubt. Fall under this level and all bets are off.

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