What the January rebound tells us about what’s coming next

Free After-Hours Analysis: 

The S&P 500 popped Wednesday, making this the seventh up day out of the last nine trading sessions. Not bad for a market that was written off for dead two weeks ago.

Headlines remain mostly the same, but that’s the point. The economic situation is not deteriorating and we avoided the worst-case scenario, meaning a big portion of January’s panic selling was an overreaction. But that’s the way this usually goes.

Overly pessimistic markets set up to rally on “less bad than feared” and that’s been the story of the last two weeks. As I wrote back then, markets love symmetry and that means the biggest selloffs have the biggest bounces. And what do you know, the index is up nearly 10% from the January lows. Funny how that works.

Buy this bounce in a 3x ETF and now we are talking about real money. Not bad for two weeks of “work”.

But that was then and this is now. Expecting this 10% rally to keep going is getting a tad greedy. Markets move in waves and it is worth remembering that at both the bottoms and the tops.

While I still like this market and will keep holding a trade that is working, it is time to shift to a defensive mindset and protect what we have. Move stops up and see where this goes, but no one should be surprised if this stalls near 4,600 resistance and rests for a bit.

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