You might think that buying a gap down open would be too obvious to work yet again but you'd be wrong. Traders actively bought the weakness this morning and have the indices well off of overnight lows.
Historically, patterns that are extremely obvious eventually fail to work. The reason for this is that traders start to anticipate the reaction to such a degree that the pattern never has much of a chance of developing. If everyone knows that a bounce is highly likely then they buy faster and bigger at an early stage to get a jump on others. If there are enough traders doing that then the dip never develops.
In the current market, this phenomenon has been undermined by computerized trading. The computers don't anticipate to the same degree as human traders. They are triggered to buy only when certain conditions occur. Currently, the most common programming is to buy when there has been a certain level of weakness and to keep on buying as the bounce continues. That is what we are seeing again this morning.
As I've written a number of times lately, if you are looking for a market turn then it is important to focus on the action in the afternoon and at the close. The bounces in the morning are routine but if the buyers don't stick around into the close then that is a sign that time frames are short and the chances of a market turn are increasing.
Despite the red indices, there are some good pockets of action in individual stocks. There is no broad selling or rush for the indices. Three stocks on my radar this morning are Spartan Motors (SPAR) , Bilibili (BILI) and Tempur Sealey (TPX) .
Ideally, things won't bounce back too quickly and we'll see some better entry points develop.
