Risk in Both Directions is Small
In Monday’s post, I briefly discussed “V” bottoms and their rarity. I also mentioned that stocks had come very far, very fast and that a pullback or pause was due right about now. So far, stocks have perfectly paused and mildly pulled back. If the rally from the Christmas low remains fully intact, the pullback should be over with either some additional sideways action for the market or a return to new recovery highs next week. It’s that easy right here.
If stocks see any further weakness that closes at a new low for the week, then the market has more to go on the downside with the possibility for the initial thrust rally to be over at last Friday’s close. At this point, there aren’t any strong clues as to which way the market wants to go, but the risk is very small in both directions.
You can see a familiar chart, recently redrawn, below where I drew in those blue lines on December 21 to show the most logical area that the first bounce should head. In reality, the bulls pushed even further and now reside above it. I know this chart looks a little different. It’s because I somehow either deleted or moved my other chart template and I had to create this new one.