The news from the European Union fueled stocks at the open and throughout the day. Severe oversold conditions certainly helped out the situation as the bailout helped calmed the fears in the market. The Volatility index took a dive, but was able to finish above its open showing fear still exists in the market. We did witness a strong bullish close as volume soared at the close showing buyers accumulated shares at the close. Today was day one of an attempted rally, but given last week’s destruction of charts it is highly likely this will fail. On the face of it today may have been a positive day, but it will take to repair the damage of the last few weeks.
Another troubling sign was the lack of volume we saw today, even with the perceived good news out of Europe. Perhaps it was a lack of conviction the bailout plan was going to work it is troubling to see the lack of conviction. We could see volume come in later, but with what happened with the “glitch” last week confidence isn’t at all time highs for the stock market. Regardless of the why the fact remains we didn’t see the market rebound strongly. It may come later, but right now trading what we see rather than what we think is what is important. Without conviction it is tough to enter into any long positions with conviction.
Shorting this market at this point is very dangerous. We remain in extreme oversold conditions and have been for a few weeks. It is possible for us to reverse lower here, but the likelihood of this occurring is small. Even with today’s move the short side still is obvious and until it becomes less obvious sitting and waiting is a better course of action.
Opportunities will present themselves here, the best course of action is remain patient and do not get ahead of yourself. Last Friday shorting was very obvious only to see yourself getting hit hard by Monday’s action. It is ok not to be in the market, even the greats take a break from the market. Jesse Livermore often took fishing trips to get away from the market, but the key point is you can be 100% cash and sit back and wait for the market to come to you. We’ll continue to be searching for opportunities to take advantage of.
Stay disciplined and do not over-trade this market. As always cut your losses.
Disclosure: Disclosure: no position