Price action yesterday was indicative of news digestion. This bid was tested across the board and most names held up. There was not any urgent or major selling pressure yesterday and I assume that will likely be the case today, too. More corona virus cases and deaths will be reported each day but what’s important is the rate of change from day to day. This will tell us whether we are accelerating or decelerating, and how fast.
This is a big earnings week and there is also a Fed announcement Wednesday at 2pm. Until then, expect the market to be choppy and sit on some cash to see which way things swing. Earnings are expected to be good, but they will have to really crush expectations for a continued move higher in most names.
The SPY was range bound yesterday from 322.50 to 325. This morning we have broken above that key 325 level. If we stay strongly above SPY 325 and dips are being bought up, then I suspect a 326 breakout will get us back to 328 sometime this week. As for downside targets, SPY 320 makes logical retracement sense but as we all know trading the downside in this market is next to impossible as it would likely be a gap down move to get us there. In my opinion, it is best to hedge a small percentage of your account in gold names or bear ETF names for the short term. The corona virus isn’t going anywhere fast, but the market doesn’t seem too concerned about its impact (for now).
For day traders, I recommend waiting for SPY to break yesterday’s range before making any trades. Use that range as your guide for sentiment. For swing traders and investors, I recommend having a small hedge position or two until the correction is over and the virus hysteria has calmed down. Also, with the Fed announcement and many earnings this week I recommend it is a good time to be sitting on some cash for the next big opportunity.
The VIX has already begun fading yesterday’s spike and looks like it is headed back down to test the key 16 level. Be ready for a spike or fade off 16. If we fade 16 then it will be a good time to scoop some longs assuming no Fed or earnings risk is imminent.
Be patient, the correction may not be over just yet.
Market Madness 