Tuesday, June 28, 2016

First Bounce

Today is the first bounce after the plunge.  Of course, to frustrate the daytraders, you got most of the bounce during Asian trading hours and most who go home flat totally missed the buying opportunity.  That is why you have to always be willing to take overnight risk if you want to catch the more predictable trades.  And it is always easier to predict a gap up than a gap down.  Always.

The numbers don't lie.  Overnight gains have been the major source of the gains over the past few years.  I made a blog post about this market behavior in 2009.

Especially when traders are worried about overseas risks, you have a tendency for the market to gap up strong if the world doesn't end.  And usually, the world doesn't end (except for a few times in 2008!).

The first bounce after a steep plunge is usually shortable, but I will not be shorting it because of the "bad" news.  If we had gone down 120 SPX points on no news, I would be much more comfortable shorting a bounce.  Since everyone has a reason to short because of Brexit, even if it is the absolute wrong reason, it makes the odds less favorable for shorting.  Still, if I had to put on a trade, I favor the short side on a bounce towards SPX 2015-2020, expecting a move down to 1980-1990.

This Brexit is one of the very few times where a known big bad event actually surprised the crowd in a negative way.  The more I watch CNBC, the more I am glad these aren't the people doing important things, like building cars, factories, power plants, etc.  The incompetency and wild conjecture on this Brexit issue is alarming.  Clearly the scientific method is almost completely absent in the world of finance, which leaves a lot of room for edges in the markets.

Expecting today's bounce to fade and we should retest yesterday's lows and probably bust through them before the week is over.


MM111 said...

Looks quite strong so far...

MM111 said...

FTSE tearing it up. Maybe this is the big bounce.

Market Owl said...

I think we'll chop between yesterday's lows and today's highs for the rest of the week. We should resolve higher though after the chop, just to frustrate the Brexit bears.