Monday, May 17, 2010

Not Our Typical Strong Monday...

It wasn't a typical strong Monday, but the bulls did manage a decent bounce back from some weak action this morning and even pushed us into the green by the close. That makes for 19 positive Mondays out of the last 21.

The market was stretched a bit too much to the downside, so an oversold bounce, especially on a Monday, isn't a huge surprise. Unfortunately, the action today did little to repair the technical damage that has been done the last couple weeks, but an intraday bounce and a strong close are good signs. This type of action has started the many V-shaped bounces over the past year. The bulls make a stand, and although the charts don't support much more upside, they build on a weak bounce, and before you know it, the squeeze is on and underinvested bulls are scrambling to put cash to work. These bounces always come on mediocre volume, which makes them very difficult to trust, but that seems to work in their favor.

I'm not suggesting that we are going to see another turn like we had in February, but given the number of times we have had these unusual bounces we can't be closed-minded about it happening again. The damage done by the "flash crash," the euro meltdown and the China tightening are much worse than anything we've seen in a while, so it is tougher to shrug it off, but a lot of longer-term bears don't want to be caught leaning against another big V-ish snap back.

I added more AAPL today, and have no shorts, so I'm positioned for a bit more upside, but I'm not betting on the V-bounce yet. While we had some good intraday reversals in individual stocks, most charts need further work to offer attractive setups. If a major change in market character is under way, then we have to be watching very carefully for another failed bounce. We are so used to bounces always working that we can easily let our guard down too easily once we have a little upside. This market is not out of the woods, so keep your caution levels up.

long AAPL

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