At the close on Monday, the bears thought they might finally be in a position to profit from some downside momentum. There had been a very aggressive intraday reversal in the Nasdaq after hitting an all-time high. The last time a reversal of that size had occurred from highs was near the market top back during the internet-bubble in 2000.
On Tuesday morning the mood was poor and it looked like some selling would continue but the bears were unable to press their bets and the dip buyers started to step up and find some bargains. The buying gained intensity all day and by the close, a big chunk of Monday's losses had been recouped.
To make matters worse for the pessimists, Moderna (MRNA) released details of a Phase One trial of its Covid-19 vaccine that looked quite promising. Futures reacted strongly and the indices are set to gap up at the open this morning.
This action is a good example of how difficult it is to try to time the indices. There has been some compelling bearish argument for a while and the reversal on Monday seemed to indicate that maybe they would start to matter, but that logic was overwhelmed by two forces - positive sentiment and speculative interest.
If you watch the price action during the day there is one thing that is very clear. Market players are still trying to put capital to work. The big fear that exists is missing out on more upside. When there are dips, the worry isn't that the bottom is going to fall out again like it did in February. The worry is trying to catch the move back up as quickly as possible.
The folks that are engaging in the aggressive speculative trading that has been going on for a couple of months are almost oblivious to market timing. Why should they even look at the indices when they are day trading stocks that are totally uncorrelated with the S&P 500? All that matters is that there is a large enough supply of traders to produce some meaningful movement.
My advice has been to stay focused on price action and not be negative until there is some sort of intraday reversal and sustained selling pressure. We had the intraday reversal but there was no sustained selling so shorting the indices was a failed trade again.
My focus here is to stick with what is working which is aggressive trading of individual stocks. The market timers just aren't making any progress right now. The best place to focus our efforts is on stock picking and with earnings season starting to heat up there should be even more opportunities in individual stocks.
The intraday reversal on Monday turned into a bear trap and now we will see how long it lasts before the upside pressure relents.