The Real Pain Can Hit Just When You Think the Market's Turned the Corner
Here's how investors should approach relief rallies and the one thing it is very important to focus on in this environment.
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After the pounding the market suffered last week, an oversold bounce on Monday isn’t a big surprise. Breadth was more than two to one positive, and the indexes recovered from a midday swoon and had a decent close. There was about the same number of stocks hitting new 12-month highs as lows, and the bounce in semiconductors helped quite a bit.
Apple AAPL recovered from a sell-the-news reaction to its new product introduction, but Alphabet GOOGL was a sore spot for the Magnificent Seven.
While it was a relief to have some better action, there is no reason to believe that a bottom has been hit and it is straight up from here. Counter-trend moves tend to create FOMO very quickly because traders don’t like to believe they have missed buying the lows. They are overanxious about embracing recoveries, but that is when the real pain of a correction can hit.
We will see if the bulls can keep things running, but it is probably a good idea to tighten stops and be ready for a retest of lows. CPI on Wednesday is going to be a market mover, and we can’t just assume that a soft number will be positive.
In this market environment, it is particularly important to be clear about time frames. It is very easy to let a failed trade turn into a long-term investment if you aren’t diligent in managing positions. There are some good opportunities out there, but timing is the key.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
