The conventional wisdom is that its not a good idea to chase a gap-up open on Monday morning. It is an invitation for those that are long to do some flipping and lock in gains but aggressively selling an opening pop has generally not been a good strategy.
According to OddStats the S&P 500 has gapped up on Monday five times in 2018. Every time not only did the index hold on to the gain but three of those times it added to the gain. The big follow through failure occurred on March 27 but at that time the indices were experiencing huge surges in volatility. In the current market, volatility is suppressed and there doesn't seem to be any tendency toward big swings.
One important thing to note is that in the four prior cases of Monday morning gaps, the S&P 500 was lower at some point in three situations. The exception was April 9 when the S&P 500 ran up to a high on April 18.
The lesson here isn't a complicated one -- don't be in a rush to fade the sort of strength we are seeing today. In the current situation the potential for a rotation into the big caps and out of the small caps is even more likely to keep things running.
For those reasons and a few others I have a bullish bias but I am struggling to put money to work . A few names I'm inclined to add to include Health Insurance Innovations (HIIQ) , Clearside Biotechnology (CLSD) and ChemoCentryx (CCXI) . There are not as many appealing setups as I'd like but if there is a solid close today I will be a little more aggressive in adding some long exposure.
Fading the sort of strength we are seeing today is logical and pretty easy. The problem is that the odds aren't very favorable.
