The big question now is: Will this stock market reversal hold?
While it was likely that the S&P 500 Index could bounce early this week as part of a bearish trend, we are still in a wait-and-see mode. Active investors need to see more strength to think this leads to a longer rally than a few days. I’d like to see a sustained move back over 3400 on the S&P 500. That would likely lead to a multi-day rally this expiration week.
But until we get that strong move over 3400 (that sustains beyond tomorrows Fed decision), we need to closely monitor trading positions.
Broad Stock Market Commentary: More Buying Ahead?
Monday’s sharp bounce gives rise to the thinking that potentially a snapback bounce attempt can happen into Expiration or even 9/24-26 BEFORE a larger, faster selloff happens into October.
This can’t be ruled out as of now, but none of the US indices have shown sufficient strength after the 7-11% quick decline to warrant being long for any real meaningful advance. Whether one attempts to play for a small bounce largely depends on one’s risk tolerance and time horizon.
However, some of the trading longs on our “Focus List” do in fact still look very good technically, such as stock tickers LUV, MGM, ALGN, NUS, and it should be right to consider these names while also having the freedom to turn defensive rather quickly on any whiff of a downturn.
This is still a difficult tape to have a strong directional bias, as the pullback has definitely stabilized near-term, though not given us meaningful signals of any impending rally. Momentum remains negatively sloped and the sharp trend violations seen last week in Technology and Financials have not been recouped.
As many witnessed Monday, some of the leading “FANG” names fell to close at new weekly lows, like AMZN for instance and many formerly leading stocks had a tough time making progress. Yet a good day for Technology and for Discretionary and many of the “re-opening” trades, while Energy, remained a laggard.
Overall, the next 4-6 weeks should be down. Whether or not one can correctly be long for a week, then immediately revert to short is a much tougher game. Implied volatility has dropped off sharply and should be something to consider for those with a 4-6 week or longer timeframe.
If you have an interest in seeing timely intra-day market updates on my private twitter feed, please follow @NewtonAdvisors. Also, feel free to send me an email at firstname.lastname@example.org regarding how my Technical work can add alpha to your portfolio management process.
Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.