Stocks have a tendency to have more meaningful rallies during downturns. One of the reasons is short sellers don’t stay in their positions long and want to get out before a reversal happens. This leads to a short squeeze and more powerful rallies as short positions get covered and the bears run before they get stampeded by the bulls.
The market rallied back to resistance (old support) early in the week and stayed there. It ended the week at 6582, just above the 6550 area I talked about over the last couple weeks.
It has squarely broken the downward price channel that it followed the entire month of March.
All this means is the market has recovered from oversold conditions. I am a little skeptical that there is much intestinal fortitude to move higher from here. The breadth indicators are all pretty much neutral and none of them are indicating the market is going to start rising.
The only thing that has happened at this point is the selling pressure has stopped. There has not been a meaningful rise is the Capitalized NH or the Monthly NH.
I would have more confidence if the rolling 52 Week NHNL was moving closer to neutral. Right now, it is just hovering.
It could go either way from here. I am testing a few long positions at the moment, but am back to mostly sitting on the sidelines. I made a little bit of a return on this latest drawn down and am now beating the market by 6.5% YTD. Not much of a return yet, but it is nice to get a little separation from the market.
One final thought, April is normally a very good month for the market. Don’t ignore the seasonal trends! They play into what trader’s believe will happen and can have an influence on the power of any pullback or rally.
