The market gapped lower as I was hoping and then after much back and forth it finished on an up note. As I indicated last night, I was interested in buying a large gap down and have held on to some of the position for a swing trade. This one has worked out so far, but I’m not terribly excited with today’s action.
Over the last few days there have been some fairly extreme readings. Two examples were the Arms Index mentioned two nights ago and the sharp three day selloff followed by a sizable gap down this morning. The reversals generated from these conditions the last two days have not been inspiring. Today’s action was wildly up and down. Bulls have not been able to take control for more than a couple of hours at a time.
It has now been 5 days since the January 31st follow through day. Last Friday I did a study on the short-term implications of follow through days. It showed that success or failure of the new bully rally attempt is about 67% predictable based on the action of the first 5 days after the follow through day. That study therefore now predicts a continuation of the bear.
The good news is the market has managed to hold support so far. Readings around the January lows were severe enough that it remains plausible a significant bottom could have been made. I’ve obviously not yet given up on that idea. The market is in no-man’s land right now. Tests run tonight based on current action are showing no significant edge. Technically, a move above 1400 would signal the bulls are taking charge while a move below 1270 would signify the bears are still in control. That range is very wide but with the recent and expected volatility, I’d be surprised if it wasn’t broken fairly soon. I’m holding a small long position leftover from today but not looking to aggressively add to it.