The action this morning is a good example of why some traders choose a more anticipatory approach to the market. No momentum trader would have bought yesterday's ugly close, so they are missing out this morning, while those who have been averaging in lately are feeling much better. Of course, many of the anticipatory bulls are still underwater and underperforming the folks who are heavy cash, but this action is a huge relief.
I'm among those who are heavy cash this morning. When we have a close that looks like death and then a euphoric open, I'm almost always underinvested, but that's the price to be paid not to get caught in a downtrend.
We are seeing classic "out of position" action and conditions are good for it to continue. As long as we stay above the opening lows, I'll be leaning bullish and looking for entries.
My job now is to look for stocks that may have some sustained upside. I just remounted some Silicon Motion Technology Corp. (SIMO), for example, and one of my old favorites, Web.com Group (WWWW), has a buy recommendation from Morgan Stanley and an $18 target this morning. Mentor Graphics Corp. (MENT) is a Shark technical buy today and it is breaking out. Westport Innovations Inc. (WPRT), which I mentioned yesterday, broke out and I sold that.
I'll be digging for entries as the day continues, but I really want to see how the dip buyers act on a pullback. If we crack the opening lows and have another intraday fade, it is really going to hurt sentiment. But at this point, the likelihood is that the bulls will finally manage to run a little.