With the indexes and many stocks extended after a strong move and a long list of macroeconomic headwinds, the obvious trade at this point is to fade the strength and raise some cash. Even if a significant market bottom is forming, that does not mean that stocks are going to continue to go straight up from here.
That thinking is extremely obvious to anyone that follows the market closely. A strong counter-trend move when we still have a hawkish Fed and the potential for a recession is almost an engraved invitation to do some selling, but when something is too obvious to the majority of market participants, it doesn't tend to work very well.
When the market is as strong as it has been recently, it tends to stay stronger longer than seems reasonable. First, the strong move creates a large group of folks that are anxious to buy any dips. They may have missed the first move higher, but they are much more willing to buy dips. Many traders do not like to chase strength, but a shallow pullback is all they need to make it feel like the entry points are not as unreasonable.
Second, V-shaped action tends to scare out weak bears. Many shorts don't have much capacity for pain, and when the market stays strong, they throw in the towel rather than try to stand firm.
I suspect that the market is not going to suddenly collapse right now, but will chop around for a while, and then it may roll over. Flattish action will discourage both bulls and bears and create the setup for the next move.
I'm using some strength to reposition, but I am still looking for some entries in stocks that have good charts. My Stock of the Week is Aehr Test Systems (AEHR) , and it is off to a very strong start this morning.