The Next Leg of the Rally Will Be Big – Don’t Get Shaken Out

Posted 9:30 AM ET - Last week the market staged an impressive rebound from the 200-day moving average. The S&P 500 closed solidly above the 100-day moving average and the buying was strong. We saw a little profit-taking late Friday and I attribute that to option expiration “noise”. After a three-day weekend we are seeing some selling before the open. Bond yields are moving higher and that is pressuring stocks. We should expect some aftershocks after a 12% correction. Buyers will want to make sure that the bid is strong before they add to positions. Support is at $269.60. That is the close from Wednesday and at some point the market will want to fill in that gap. It could happen today. Once the bid is confirmed stocks will stage the next leg higher. I urge you not to micro-manage the bounce. If you take profits along the way on the notion that you will be able to re-enter at a lower price you will get caught flat-footed and you will miss the move. Corporate earnings are strong and guidance is excellent. Bond yields are still near historic lows and the Fed has been dovish. Economic releases have been robust. Swing traders should use a close below $269.60 as a stop. That gives the SPY a chance to test support, but we want to close above it. Day traders should look for an opportunity to get long once support is established. Intraday volatility has been fantastic. Look for nervous trading today and stability Wednesday. I believe the market will finish on a strong note Thursday and Friday. . .

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