Small Cap Network Blog

Like clockwork, the market zigged just when everyone was sure it would zag. In some respects the market almost forced traders to zag, by taking out prior lows … even if only for a few hours. By the end of the day though, anybody who got spooked out (or stopped out, when the S&P 500 feel under 845) was kicking themselves when the very same index rallied 6.9% to close at 911.29. Hopefully that was none of you, particularly after I wrote this is yesterday’s newsletter….

“I drew my line in the sand at 845, while today’s low ended up being 850.48 …. Before we all start jumping to conclusions, I wanted to pass one last idea along - don’t freak out just because the S&P 500 trades under 845 for a while (as in a day, or even a few hours). Why? I’ve got a feeling there are a few million traders watching the same line, knowing there are a lot of stops just below that level. It wouldn’t take much to push the market a little lower than 845, only to stop out all those traders. Then, when the selling gets triggered, some bigger fish could swim in and buy into that selling (and consequently pick up some bargains) … If the indices stay under recent lows for a day or two, or show no hint of a rebound (or if the selling volume finally picks up), then the market could make a legitimate leg lower. I’d be suspicious of a mild bearish move or gap lower though, especially if there was no follow-through … I just don’t want anybody to get faked out needlessly. Just for the record, I’m not buying yet, but I might be buying if the bears pass up the chance to take us even lower.”

What happened today was precisely what I was talking about.

If you did get taken out at the exact wrong time, don’t worry - another opportunity is just around the corner. Just tuck the lesson away in your back pocket for next time.

As for what’s next market-wise, I’m encouraged by today’s firestorm of buying, but I still have the same concern I’ve had all along… it’s tough to keep rallying at such a blistering pace. I can see the market cooling off a little after today. It may not be tomorrow, and it doesn’t have to be a drastic dip. But, a 7% rally is tough to follow-up on.

But hey, it’s better than the alternative… which was another meltdown.

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