It is well known that the biggest bounces tend to occur in the worst markets but a near 30% bounce in the S&P 500 has many market players in a quandary. The move already felt quite excessive but then the Fed announced an additional $2.3 trillion in stimulus and pushed the indices up even further.
The response of many bulls is the same one we have heard for the past decade: 'Don't fight the Fed'. During the long bull run, I often discussed how that was the single best piece of advice that you could follow.
Despite the history of the Fed's omnipotence, there are market players wondering if it may not be so easy this time. The size of the stimulus is now an unprecedented $8.5 trillion which causes many to wonder if this is a panic approach that won't fix many of the problems out there.
All we can do is defer to the price action and let it tell us if the Fed is going to produce the same sort of positive momentum it did in the past or will it serve more of a backstop at this time.
As I write I'm seeing some selling pressure picking up. It is looking like a 'sell the news' reaction to some degree as the market digests another big unemployment report, a likely deal on cutting oil supply, and the Fed move. If there hadn't been such a huge bounce into this news already the chances of sustained upside would be higher but this is now a market that is ripe for some 'repositioning'. If you are holding substantial longs, the prudent move is to reduce risk into the strength and look for another entry point down the road.
One of the great challenges of this market for technical traders is that this sort of recent price action does not create favorable chart setups for long entries. There simply are not many good charts when most everything has gone straight down and straight up. If your timing was good then this is a time to sell rather than to buy.
One position I did add to is gold mining play Barrick Gold (GOLD) . It had formed a quasi-cup-and-handle pattern and is now probing the highs it hit in February. The massive Fed stimulus is positive for gold as it creates fears of inflationary pressures.
Don't forget the market is closed tomorrow for the Good Friday holiday.