The First Stop May Be the Dirtiest

With the broad market off to a sizable Monday morning bounce coming off one of the worst Thanksgiving weeks of trading in several decades, many are quick to point out potential "double-bottoms" on the various indices with respect to their prior October lows. To be sure, those patterns have not yet confirmed and are a good ways away from doing so, as a much more explosive broad market rally would be required before we can become more serious about declaring an intermediate-term bottom of any kind on the major averages. 

Until then, we revert back to the one-step-at-a-time mindset which has helped us largely avoid the pain of a fairly significant correction since late-September/early-October. First and foremost, are are typically leery of corrective markets opening very strongly only to close poorly, as has happened many times during this correction.

Indeed, corrective markets actually feature morning rallies (which often fizzle out) far more frequently than silky smooth, up-trending markets (which tend to open poorly but close reasonably well more often than not). While we may want to key off crude oil or Apple, the reality is that the broad market often moves in lockstep up and down during corrections as indecision reigns supreme and buying and selling alike sees a feedback loop.

As it pertains to the current market, the morning gap higher has taken us to last week's resistance on many index charts.

The SPY (ETF for the S&P 500 Index), below on its 15-minute chart, illustrates this point at the $267 level. If bulls fail here and we knife back down below $264 then all bets are off for a rally. But surely this is the first stop to assess the strength of this rally, or lack thereof.