Rally Built On ‘Hope’ Crumbles… Again

2020-06-24 | Simpler Trading Team

Did the stock market just get a shocking dose of reality?

Markets dropped like a rock today, supposedly on news of coronavirus spreading.

The Dow fell to 25,445.94 points to close down 2.72% (dropping 710 points on the day). The Nasdaq dropped to 9,909.117 points for a 2.19% stumble while the S&P 500 lost 2.59% to 3,050.33 points.

The Nasdaq closed the previous day at it’s all-time high.

Simpler Trading noted signs on the Nasdaq chart that it was “too perfect” leading into today’s selloff.

The last time the Nasdaq rode the market’s current “hope and rally” expectations earlier this month, a gap to the downside followed.

The last few months have been a state of “economic hope” by the markets, fiddling as the day-to-day world struggles to recover from a pandemic and economic crisis.

Market reaction to weeks of real-world events — like riots, Covid-19, and foreign trade — has been to keep running with the rally.

Then, suddenly, similar news Wednesday of Covid-19 infections spiking sends the market twisting downward.

The Nasdaq ended an eight-day positive run, including the aforementioned all-time high.

So why did that singular topic of “bad news” affect the markets while the previous volume of even worse news didn’t stunt the bullish run?

That may well be the debate for the ages.

That is why Simpler focuses on the charts, indicators, and signals proven to navigate any direction a crazy market turns.

Hope and news don’t define higher level trading.

We’ll be prepared to run with the bulls when the market rallies again, but we maintain a bearish mindset.

Taking only strategic trades to maintain mostly cash is the plan at hand. This allows for a nimble strategy ready to grab opportunities, whatever the news or next infusion of hope.

We Saw: sharp gap down across the indexes — 

  • Tech can’t keep Nasdaq from falling
  • Questions of what sparked the drop
  • Another burst bubble of ‘hope’

We’re Watching: for signals of continuation or rally —

  • Position sizing to protect capital
  • Who starts tomorrow in bull vs. bear tussle
  • Setups in: DPZ, PETS, PTON, DOCU

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