In the weekend Briefing I discussed the apparent strength that came into the Stock Indices on Friday. This technical change to the structure of the markets suggested a possible short to intermediate term low may be in place. That analysis is based on information the market gives us on the trend of price and the strength driving that trend. However, when the psychology of the market (traders) changes, the technical structure will change as well. We see this many times in multiple timeframes and an Index or Stock will make a “V” turn based on a change in the perception of value that is typically caused from a news event.
Since the analysis presented in the weekend Briefing, there has been additional news concerning the pandemic. Based on this, there is a high probability the strengthening technical structure from Friday may be overridden. If this is the case, Stocks will be in search of value. Due to the uncertainty, traders will be unsure of whether value is higher or lower. This can result in volatility, a choppy market and possible wide swings in one direction and then a reversal. Use caution tomorrow and resist chasing price.
Allow the markets to settle after the open and keep an eye on the market internals. A rise or fall in price accompanied by a strengthening structure will result in most stocks rising or falling in the direction of the trend.
Our job is to make money in the financial markets. However, along with that we must manage risk. The temptation to chase price will be great. Look to where the strength lies, use good stop management and resist the urge to “jump in”. Remember, trading is being long. Trading is being short. Most importantly, trading is standing aside when the “herd” is directionless.