After an energetic bounce in the last 90 minutes of trading on Monday, it is reasonable to expect some follow-through action on Tuesday.
There was a very slow and mixed start, but much better-than-expected factory order numbers helped to produce a little pop. We'll see if that can help to create better momentum, but there doesn't seem to be much willingness to chase.
What has made trading this market particularly difficult this year is that neither "buy the dip" nor "chase the strength" has worked very well. According to Jason Geopfert of SentimenTrader.com, the S&P 500's average return following a down day is a loss of 0.18%, and the average return following a positive day is a loss of 0.16%.
In other words, there has been no consistency, and neither approach is working for traders. This is highly unusual, and according to Goeppfert, the only other time when there were similar numbers was way back in 1932.
How brutal has 2022 been?
The S&P 500's average return following a down day is -0.18%. Following an up day, it's -0.16%.
This is the 2nd year ever that both the buy-the-dip and chase-the-rally crowds have been so screwed.
The other was 1932. pic.twitter.com/gSTQi2BsSb— Jason Goepfert (@jasongoepfert) May 3, 2022
The lesson here is obvious: We have to wait for better price action before we can trade aggressively. If you are aggressive in the current environment, you are going to be chopped up. We need a shift in the character of the price action, and that is not yet happening.
I'm dinking around with a few small trades but continue to carry very high levels of cash and wait for charts to develop. Quite a few small-caps that I follow have earnings reports coming up, which may create some movement, but I'd rather buy after the news rather than bet on the reports.
One of the best small-cap charts I see is Ondas Holdings (ONDS) , but it is trading very thin and needs a cooperative market to help it move. A couple of stocks with upcoming reports that I'm watching are Sensus Healthcare (SRTS) and Alto Ingredients (ALTO) , but overall, market conditions are not supportive of aggressive action.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider STRS to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)