How to play the bounce and the future breakout
| | | | | | I'm not a masochist, but sometimes you have to have pain before pleasure. The market action last week is the TEST & REJECT selloff that starts a turnaround typically.
Prior performance is not indicative of future results but that is how bottoms are built.
The Monday reversal was an epic flush out of any weak hands to break the psychology of longs trying to hold on. A negative 3% day on top of weeks of downward dive marked what can often be a last gasp in a profit taking pullback.
The S&P, our broad market barometer, flirted with bear territory off 10% from the top, before a recovery rally to finish positive on the week.
Think about that…new multi month swing lows, then a positive weekly close!!!
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| | | Now, much more needs to be built on the bottom base. The 600-point drop from the top in just weeks has a midpoint pivot just above at 4500 to conquer and shake up the short sellers.
The question is: Can sentiment change from "sell the rallies" back to "buy the dips" that had been the Bull Market mantra?
Friday's fun was bargain buying like we have seen over the last decade of this mega bullish run.
Back to prices: As we said last week, violent volatility is usually how this selling slam ends. A base is now in place for a bounce back. Fear factor $VIXplosion topped out at $39 to double in just a few sessions before a retreat to minus on the week.
Simply speaking, a move back above the 4500 midpoint pivot projects a full "V" recovery to the 4800 January 4 ALL-TIME HIGH.
That is just the beginning if past performance is any indicator: The distance of the fast fall on top of the old highs targets 5400 + another 15%+ up above.
Technical analysis removes opinion and thoughts that it is different this time…let the price action push decision-making about where markets are likely to go.
Either the S&P shows strength and moves above the key midpoint or the downward cycle resumes knocking out the bottom to mark new multi-month lows.
Let the market show you the way to play…
Alan Knuckman,
Elite Money Trader
P.S. My colleague, Rob Booker, did a class yesterday about how to find low dollar "home run" trades... high risk, high reward kind of stuff... in this market, those are especially discounted and can create some great opportunities.
Watch the Workshop Here
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