The high or low for the day is made in the first hour of trade over 70% of the time. Hence yesterday, when the market sold off early, found a bottom and then rallied taking out the first hour high, I was pretty confident we had the low behind us for the day. The market though, took the road less frequently travelled and by mid afternoon, was back taking out that morning low. So we reversed and then reversed the reversal. That’s not common, but it does favor the bears a little bit. What would favor the bulls, if we reversed again Wednesday and took out the Tuesday high.
My favorite stock here is ARKK, the innovation ETF. I took a bullish position there on the Tuesday dip, using December calls.
The market will do what it needs to to trap most traders positioned the wrong way. If we truly had a way to know whether longs or shorts stood to suffer the most, we would know with high accuracy which way the market was going. Whichever group would suffer the most pain in an adverse move would be the way the market would go. That’s not so easy to determine. Put/ Call ratios can sometimes tell a bit of the story. However those are neutral right now. My sense coming into today was there were more people looking to short the market, then there was to buy the market. That sense came from my experienced but subjective read of financial twitter and the ilk. Therefore I believed the pain trade was higher. The market can gyrate back and forth a lot while it is setting the trap. Once the trap is sprung though the move will usually come quickly and with some velocity. So if we are going up, I expect the trade to start to unfold this week. Looking at individual equity charts doesn’t make me bearish at all. So I am sticking with my bullish view. The CPI on Wednesday morning may be a catalyst for a directional move, but I think it’s even more likely it’s a catalyst to extend the trap. The real move may not come till later in the week or next week.