Monday, February 12, 2018

V Bottom?

It looks great on the charts, the hammer reversal on high volume, testing the 200 day moving average, and rallying hard into the close and now gapping up huge on a Monday.  Short term, it probably will grind higher just because there isn't much resistance till you get to 2680-2700 area.  But you just don't make a V bottom and never look back when the VIX goes from 12 to 50. 

I am still long, but got in way too early so hardly showing a profit despite a 120 point rally off the Friday low.  It could have been worse.  I could have puked it out on the Friday selloff, expecting another massive sell into the close, but the market was so oversold and the put activity so far off the charts, that it felt like the market was a coiled spring looking to bounce back.  Originally, I was looking to sell on Monday or 2720, but now it looks like it will be better to sell later this week, and will hold on to see how much higher the bulls are willing to take this thing. 

The big event this week is the CPI coming out on Wednesday.  The worry that is pervading Wall Street is inflation.  I have a feeling there could be a relief rally after the number comes out, which could propel us to the top of the range.  After a capitulative selloff on Thursday/Friday, and strong reversal, the bulls will get emboldened again and take prices to where they can't sustain, which is 2700+.  That is the target area to sell the long and reverse to short.  Last week carved out the top and bottom of the range for the next couple of weeks, 2720 on the top end, 2530 on the bottom end.  Those will be the general boundary areas where you want to fade the momentum on either side. 

I don't think the worst is over, and full expect another strong selloff after a few days bounce.  However, that next selloff should be more contained than last week's selling, where uncertainty about price support levels caused investors to sell first, ask questions later. 

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