After Monday’s plunge, stocks staged a rebound on Trump’s stimulus promises. While the bulls closed higher than the market opened on Monday, was it a resounding show of their strength?
Let’s jump right into the daily chart to find out (chart courtesy of
https://stockcharts.com).
In short, we doubt that it revealed buyers’ strength. As the traders say, even dead cats bounce. The bulls didn’t even manage to challenge the sizable Monday’s gap. Also the
volume on the upswing was lower than that of the preceding downswing, raising further doubts about the bulls’ strength.
In light of the above, we’re of the opinion that the daily indicators’ divergencies can’t be trusted and that the
indicators will head to new lows instead. As a result,
our open short and around 60 points in the black position remains justfied. New 2020 lows are very likely ahead of us – that’s a pretty safe bet to make as the S&P 500 futures are trading at around 2770 currently.
Due to the sizable volatility, we have to work with wide enough stop-losses and initial downside targets. In these times, we’ll be better off managing the open position accordingly. As we have written yesterday,
remember that you can adjust your position sizing if the short position would mean risking a higher trading account percentage than you’re comfortable with.
Summing up, yesterday’s upswing fueled by the contemplated stimulus, isn’t really convincing, and both the weekly and daily charts keep sending bearish messages. The downswing appears likely to have further to go on the downside before the market regains confidence in a lasting turnaround. Therefore, keeping open the profitable short positions is justified.
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Thank you.
Monica Kingsley
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care
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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.