Old-time traders are always tempted to 'fade' big gap-up opens like we are seeing this morning but in a market as volatile as this one, it is a tough trade. The longer the open gap holds up, the more likely that folks with idle cash will start to inch in. The fear of missing out builds with strength and the only way to combat it is to give in at least a little.
The strength this morning fills the gap on the S&P 500 chart that was created on the morning of April 1 and puts the March 31 highs in play. A retest of the highs is going to give the bulls some optimism but news flow is going to be the key. We should see more coronavirus data today and if there continues to be evidence of topping in the stats it will keep a strong bid under the action.
I've made a couple of small sales into strength this morning but I'm holding around 80% cash so I don't have much repositioning to do at this point. This is still a very difficult market for individual stock picking as the action is strongly correlated. Breadth is almost 10-1 positive which is all you need to know that the action is index and ETF driven.
Interesting there are only 11 new 12-month highs and 19 new 12-month lows which tells us that we are in the middle of a trading range right now. The volatility and huge swings change the feel of the action but this is just a giant trading range right now.
I was looking at some index shorts early but decided to set that aside and wait to see how things progress as we see more Covid-19 data. My thesis is that we are going to bounce around in a trading range and stock picking will have to wait for days with a much narrow range.