Wednesday’s trading signal

Free After-Hours Analysis: 

Tuesday was a bit of a timeout for the S&P 500 as it closed pretty much where it started. Whether this is good or bad depends on which side of the bull/bear debate you fall on.

Bears will point to Monday’s dreadful intraday reversal and today’s pathetic bounce. Bulls are encouraged that yesterday’s one-way selling stopped after we filled the gap and buyers felt more comfortable getting in at these levels.

Who’s right? Well, Tuesday was a tie, making this a best-out-of-three contest. If bulls prop up prices Wednesday, then all is well again. If the profit-taking ramps up tomorrow, we could easily fall another 200-points.

The thing about market collapses is they are breathtakingly quick. If you stop to ask what’s going on, you are already too late. That means if we are standing on the edge of the precipice, we will figure that out real quick, probably within hours of Wednesday’s open. If on the other hand, not much is going on by lunchtime, then Monday’s dreadful reversal was more bark than bite.

Which will it be? To be honest, I couldn’t tell you. This remains an emotional and volatile market and those are the hardest to anticipate. That said, these are also some of the easiest to profit from because prices go in large, one-direction moves and all we need is the courage to grab on early and enjoy the ride.

If Wednesday starts weak and prices keep falling, that is our signal to stay short or get short if we are not already short. If the day ends near the lows, we can hold that short position overnight. But don’t get greedy. This is still a bull market and that means dips bounce hard and quick. Hold a few hours too long and really nice short profits morph into humbling losses.

On the bullish side of the spectrum, it is hard to envision a lot of near-term upside. If recent gains don’t consolidate through a quick step-back to support, they recuperate with a prolonged sideways grind. If that’s the case, we’re going nowhere fast and there is no need to rush in.

Short an extension of Monday’s reversal. If the market doesn’t breakdown, there isn’t a whole lot to do here other than wait for the next trade. That should cover it.

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