Why Tuesday’s selloff is already running out of gas

Free After-Hours Analysis: 

The S&P 500 skidded over 1% Tuesday morning as gas prices and interest rates continue climbing. But rather than trigger a bigger wave of follow-on selling after the index undercut 5,200 support, most owners shrugged and kept holding. The absense of reflexive selling put a floor under prices, and the market recovered nearly half of those early losses by the close.

If stocks were grossly overbought and vulnerable to a collapse, prices would have tumbled a long time ago. The market rarely gives us this long to sell the top, so odds are good this is not the top.

While a few hours of constructive trade Tuesday afternoon was great to see, by itself, that doesn’t kill the selloff. That makes Wedensday’s early trade is critical. If we survive that, the bears are in trouble.

Unless Wednesday morning turns into a dramatic waterfall selloff, this is simply another buyable dip on our way higher. That’s the way I’m trading it. I bought a partial long position Tuesday afternoon with a stop under the early lows.

If the rebound continues Wednesday afternoon, I add more and lift my initial stops up to my entry points. If the selloff resumes, I get out of my partial position at my stops for a small loss, no big deal.

To be honest, part of me hopes this selloff continues even though I’m holding a partial position. The lower this goes now, the bigger the profit opportunity the market will be giving us. Unfortunatly, I don’t think I will be that lucky and most likely, Tuesday’s selloff won’t amount to much. That’s why I’m already buying.

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