Turn the Corner? Hmmm. Careful

If I would have written this blog half way through the trading day, I would have been heavily bearish and discussing short setups and the need to run for the hills. However, now that that market has closed for the day, I’m starting to change my approach heading into Wednesday. One of two sceneries seems likely.. A gap-up and continued strength. Or, a gap-up and fade.

Personally, I hate gap-ups. They often create false hope on the long side and hurt traders with a big ‘ol morning bull trap.

Why the gap-up seems likely?

Today started with nasty earnings report and a smack down on HPQ… not to mention the messy housing numbers. However, everyone expects horrible housing numbers – the market changer would be if the numbers were actually strong. Throughout the afternoon, the market drifted up as the market started to absorb the morning mess and shake off the the charges against IMF chief Dominique Strauss-Kahn, the Greece crisis and pretty much anything we could throw at it. Simply put, the market started to bring in a few buyers by end of day and then Dell capped it off with nice earnings after hours.  The momentum has shifted slightly bullish.

A look under the hood

Few notes from the SPY daily:

• The open body shadow shows some intraday strength and move off the day’s lows and morning open.
• I like seeing that we closed above SMA50.  If today’s action does mark a reversal and it’s time to step back up, we’ll need to hold SMA50.
• SPY held horizontal support (barely)
• The morning sell volume was relatively strong (probably shook out a lot of the shorts)
• Outside of price/volume action, the indicators are still bearish telling us to be careful tomorrow

In summary, I was pretty impressed with the afternoon action and Dell will likely create a gap-up in the morning.  However, I’m not ready to trust it.  I’ll likely not trade the gap for the first 30 minutes, or more.   Of course, there may be a strong scalp available, but I’ll sit and watch for strength/weakness for most of the morning and then act.