Should we trust this bounce?

Free After-Hours Analysis: 

The S&P 500 attempted its second rebound off of 3,300 support on Monday. Will this one be any more successful than last week’s fizzle?

Critics will jump on the declining volume, but personally, with as much volume as has moved to dark pools and is no longer counted, I don’t find volume to be anywhere nearly as useful as it was 10 or 20 years ago. In fact, it’s gotten to the point where I don’t even pay attention to volume. Light volume rallies pay just as well as heavy volume ones, so who am I to discriminate?

As I wrote in Friday’s free blog post, I was far more impressed with Friday’s resilient price action:

While the market remains 7% under last week’s highs and bears are the most confident they’ve been in months, their inability to extend the selloff on Friday is definitely noteworthy. We undercut the weekly lows and instead of triggering another avalanche of defensive selling, supply dried up and prices bounce back to breakeven. If this market really was fragile and vulnerable, these little cracks spiral into gaping holes, they don’t bounce back within hours.

I followed that up with:

It all comes down to Monday. A strong open is buyable with a stop near 3,310. If that strength fizzles and prices retreat, no big deal, we pull the plug and wait for the next bounce. But most likely, that strength will stick and even accelerate. Wait too long and there is a good chance you will miss the move.

So far so good. The index gapped higher at the open and it held those gains through the close. For the time being, we have no choice but to continue giving this market the benefit of doubt and that means buying this strength. Start small, get in early, keep a nearby stop, and only add to what is working.

Will the market trade well on Tuesday? If it does, keep adding to Monday’s positions. If it retreats under Monday’s open, no big deal, jump out and wait for the next bounce.

Social media is overflowing with opinions about whether this market will surge or crash. Personally, I don’t care what it does as long as it does something. Right now, it is acting like it wants to bounce and that means I’m buying it. If the sentiment reverses tomorrow and the index crashes under last week’s lows, I have no problem switching directions and following its lead.

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