Hopes for a "V"-shaped recovery were very high Tuesday morning, as stocks gapped higher after coronavirus data continued to come in better than expected. The big jump on top of Monday's gain had some "true believers" thinking that the market could continue to run higher from here.
Unlike Monday, there was little willingness to chase the strength. Many market players used the strength to reposition and raise cash. There was one minor bounce during the day, but otherwise, it was steady selling with the Dow Jones industrial average finishing in the red and the other indexes with minor gains.
Breadth was solid with around 4,800 gainers to 2,675 decliners, which shows some greater inclination toward stock picking, but it was random and choppy action.
The question now is whether Tuesday's intraday reversal signals the resumption of selling momentum or will it turn into just a healthy pause to digest the big bounce that occurred Monday.
There is an obvious increase in hopes that the coronavirus may not be as bad as feared, but the economic damage is a different issue. Even if the coronavirus curve is flattened, the economic dip may still be just as deep. While there is some optimism about coronavirus, there seems to be more pessimism about the economic situation. Many believe the huge $6.2 trillion stimulus will accelerate the recovery, but there are plenty of concerns about how easy the process may be.
The big question at this point isn't "what does the market do next." The big question is "are there good buy setups"? The answer, for the most part, is no. This market is not offering any great buying right now. That doesn't mean it will collapse again, but it does mean that we should be in no hurry to put cash at risk.
The good news is that if we do end up with a failed bounce, then there is a good chance that the next setup that develops will be much better. We are in the process of de-risking, but that doesn't occur quickly or easily.
Have a good evening. I'll see you tomorrow.