In Thursday’s chart show I discussed why you should not bail out on your long positions just because the market begins to look a little iffy. And, on Thursday, the market had the mother of all rallies.
As I preach, when you’re not too far from new highs, you have to be careful not to get too bearish too soon. A few big up days can make all the difference in the world.
The Ps gained over 2%.
The Quack gained over 2 1/4%.
The Dow also had an impressive day, coming back from the dead to gain over 2%.
So is this the “all clear?” Well, let’s not start kissing each other just yet. Thursday had a bit of a panicky feel to it. It is likely that a lot of the eager shorts got squeezed. Let’s hope it is not a one and done.
It never ceases to amaze me that the market can have a massive day and then the next day it becomes a shoulder shrug. The futures are flat pre-market.
As usual, follow through will be key. Thursday’s action has the Ps less than 2% of all-time highs and the Quack just 1 ½% shy of multi-year highs.
The one thing that Thursday does do is to provide us with an inflection point. If the market takes out Thursday’s low, then it could get fairly ugly fairly quickly. Then we would no longer have to wonder if Thursday was just a one-day wonder.
So what do we do? Watch Thursday’s low. If it gets taken out, then avoid the long side and seriously consider some shorts. On existing positions, you know the routine, honor your stops. Let the market prove you right or wrong (write that down). No matter what you do, I’d continue to be very selective while the market finds its way. Again, ideally, the issues should have recently demonstrated that they can defy gravity. Right now, I’m still seeing a few setups in selected foreign issues. On the short side, I think we could end up with a case of the bigger they are, the harder they fall. Therefore, keep an eye out for previous high fliers as they begin to fall from grace. No matter what you do, as usual, make sure you wait for entries.
Best of luck with your trading today!
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