The biggest challenge for traders in this market is the lack of momentum in both directions. The bears deliver a gap down like yesterday and then fail to build on it, and then the bulls have a big gap to the upside and fail to gain any traction.
That is what happens in trading ranges, and that is what we have had since mid-July. There are a few flurries of activity now and then, but the indices just can't manage to develop a new trend. One day it looks like the bears are gaining the advantage, but then we wake up to action like we have now and the bulls regain some confidence.
While the gap-up open was impressive -- and breadth was better than 3 to 1 -- it has been a steady fade so far -- the S&P 500 is hitting intraday lows as I write and has already cut the day's gain in half. That suggests that stuck bulls were relieved to escape some positions and are more interested in raising cash than in chasing longs.
As I discussed yesterday, I'm sitting on a high level of cash and am patiently waiting for setups to develop. Gap-up opens are a good start to better setups, but they need to hold up much better than this.