Why stocks are not ready to go higher…yet

Free After-Hours Analysis: 

The S&P 500 poked its head above multi-month highs moments after Friday’s open, but those early gains were as good as it got and the index skidded into the red minutes later.

That said, Friday’s -0.2% loss was fairly trivial and hardly describes panic selling, especially considering the index was down nearly -1% in midday trade.

March’s rebound is running out of momentum near 4,200 resistance. But this shouldn’t surprise readers of this blog because I’ve been saying stocks have been rangebound for months. As I wrote Thursday evening:

While [Thursday’s] short squeeze produces quick profits for those of us lucky enough to be positioned on the right side of the reversal, the downside of short squeezes is they don’t have much staying power. As nice as riding Thursday’s wave higher was, savvy traders are standing next to the exits if they are not already locking in worthwhile profits.

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Well, it didn’t take long for the air to start coming out of Thursday’s short squeeze. One day’s up becomes the next day’s down. If a person isn’t taking profits when they have them, they will be sitting on losses a few hours later.

Savvy traders adopted an anti-bear and anti-bull outlook toward this market. March’s dip to the lower end of the 3,800 trading range wasn’t a prelude to a huge crash to multi-year lows, it was a buying opportunity to ride the next wave higher. And this rally to the upper end of the trading range doesn’t foretell of huge gains for as far as the eye can see. Instead, we are running out of buyers and on the verge of slipping back into the heart of the trading range.

A breakout is coming, but we need buyers to start feeling more greedy than fearful at these heights. It will happen, just not right now. Until then, keep taking profits early and often because if we don’t, the market will snatch all of those profits back.

At this point, look out for further cooling next week and ambitious traders can short that weakness. For everyone else, wait for the next bounce. Don’t worry, it will come along much quicker than most people expect.

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