My trading thesis to start the day is that this is not going to be another straight-up V-shaped move. My reasoning is:
- This corrective action was much bigger and sharper than anything we have seen since January 2016 and it will take much more buying power to go straight up.
- The primary catalyst for the recent drop was structural changes in the low volatility trade and other complex instruments. That isn't likely to reverse easily.
- Higher interest rates are a concern that is taking hold. Its been ignored yesterday and today but it is an issue that can gain traction.
For those reasons I'm taking a more cautious approach. It is important to note that watching for a reversal is much different than being short. I'm still quite long but I've been a heavy net seller today and have locked in some of the big recent gains.
I have my accounts back around all-time highs and that is always the goal. I was disappointed I gave back as much as I did in the recent pullback but it was an unusually sharp pullback from the highs. I didn't expect to be able to recoup losses very quickly but the market bounce had much more energy than I expected.
With my accounts in good shape, I want to play stronger defense now but I have to be careful to not let that cloud my view of this price action. There is still some very good strength in the biotechnology sector and I'm trying to stay with that.
I'm not a growling grizzly here but I am watching very closely for this market to have more normal ebb and flow rather than the V-shaped bounce so many have grown used to.