Commence Relief Rally: To Levitate or Not?

The opening gap higher this morning across equities is practically the living, breathing definition of what a "relief rally" is, where market players who had been leaning on the long side can let out a sigh of relief that the heavy selling we saw late-last week did not have a snowball effect over the weekend and spawn an even nastier, panic-inducing selloff to kick off the new week. 

The notion of a relief rally, however, also carries a connotation of an ephemeral bounce, where longs ought to be using the strength to reduce exposure. What makes that concept blurry is the overarching bull market action we have seen for years now, where periods of volatility and pullbacks have been short-lived and merely set up the next leg higher. At some point that regime will change in a major way, but the timing of it continues to be a challenge for even the most veteran of market players. 

Thus, we want to continue to prepare for any signs of bulls fully regaining control of the tape, via scouting and tracking the very best long ideas and charts which largely ignored recent broad market selling. A company like Aquantia (AQ), which is chart we have examined in recent weeks, and played on the long side inside Market Chess Subscription Services, is a prime example of impressive relative strength, as the chart basically suffered no damage of which to speak despite being a high beta name in a hot sector (chips) amid heavy broad market selling. 

Nonetheless, if the broad market cannot levitate up here after this morning's gap higher, then it is likely correct to simply monitor the likes of AQ instead of rushing out and buying merely because the chart is "holding up well." Indeed, holding up well is not exactly a compelling thesis for an imminent new long swing trade--We would like to be a bit more rigorous than that with our standards. 

Moreover, examining the SPY (ETF for the S&P 500 Index) 30-minute chart, below, this morning's surge is barely a blip in a multi-week corrective downtrend. If bears can muster a fade back under $260 today (roughly 2600 on the actual S&P), it may be another ugly close like we saw Friday. 

For now, discretion is the better part of valor as we gauge the sustainability of an initial relief rally. Also note the impressive strength in gold and her miners this morning, as any inkling of safety trade unwind is not being seen in that market.