The bulls got their bounce on Monday, the Fintwit panic over the Federal Reserve's closed board meeting rumors I highlighted Monday faded into the day, yields dipped, gold and oil rallied and the dollar dropped. All in all, it was a good day to own stocks. The question, however, is, whether all of Monday's goodness will come crashing down here on Tuesday or tomorrow.
I discussed yesterday morning my intent to use $275 for the Invesco QQQ Trust (QQQ) as my pivot for a more aggressive short-covering rally yesterday morning, and that's still my plan. But as far as the chatter floating around regarding Friday's low representing THE low for this bear market, the bottom will be in place long before I'm comfortable saying, "Yep, there it is." And frankly, I've never made money playing pin the tail on the market bottom. The only investors who insist on calling bottoms are those desperate for eyeballs, gamblers and talking heads who need a talking point for their next TV spot, book or speaking engagement.
Remember, a smooth-talking stock market commentator can call a bottom incorrectly 10 or 20 times, be correct once and still make a name for themselves, touting that one right call.
From my viewpoint, a stock or index doesn't appear attractive over a short to intermediate timeframe until it is above a 21-day exponential moving average (EMA). While my conviction increases when the stock clears the 50-day simple moving average (SMA), I don't consider it a higher timeframe bull trend until it's above its 200-day SMA. Based on my approach, it makes zero sense to assume I would ever catch a bear market bottom in a meaningful way because my system, if you want to call it that, relies on increasing degrees of strength to support an increased conviction.
Regarding yesterday's price action on QQQ, I view Monday's rally as a high probability bet that we have at least a few days of additional upside ahead of us. While my conviction will increase as QQQ builds support above $275, the fact that we closed back over $272 (the approximate low from Friday, Sept. 23, through Wednesday, Sept. 28) leaves me to believe that supply is running low under that level.
Assuming we clear $275 today, my near-term targets for this bounce are $282, or the volume-weighted average price (VWAP) anchored to the open from Sept. 13 -- when the August Consumer Price Index (CPI) was released -- and the declining 21-day EMA, which is currently sitting around $285.70.
One last thing I want to highlight is the bullish gold price reversal. There was strong buying across the gold and silver mining complex on Monday, and I suspect that sector has further to run on the upside over the near term. The SPDR Gold Trust (GLD) has traded well over the past few sessions, and with its close above the 21-day EMA yesterday, the next area of resistance I'm watching is $161.62 (the high from the day before the August CPI was released). While I don't own any GLD, I am long a few gold stocks.
