The Road is About to Take Some Twists

In this day and age of thinking about markets in primitive terms of either "risk on," or "risk off," the last few days of rallying is being met with a morning dip, as we speak. 

Naturally, when many a trader quickly morphs into a "risk on" mindset, especially on the back of yesterday's post-Powell explosive rally (not to mention a classic follow-through day higher on the Nasdaq), this morning's action puts them to the test insofar as gauging whether a complete rollover is in the cards. 

At these moments, plenty of traders rely on their gut instinct or perhaps anecdotal sentiment data.

But what we strive to do with Members is stay as objective as possible, putting the price action into context.

On the QQQ (ETF for the Top 100 stocks in the Nasdaq) daily chart, updated below, despite being down a full 1% as I write this the QQQ daily candle for today (thus far) has not negated yesterday's rally at all. In fact, if buyers present themselves at some point today and hang onto the 20-day moving average  (orange line) as newfound support then we can view today's action as a healthy digestion day. 

Most of all, we typically do not want to see the midpoint of yesterday's rally relinquished and igniting fresh selling below $165. 

Viewing a potential low coming out of a correction is almost never a linear path higher, despite the vast array of "V-shaped" rallies we saw during the Bernanke/Yellen Fed years. In reality, markets will back-and-fill a fair amount of the time and put fresh buyers to the test.

For this reason, maintaining an objective framework via price analysis is the better strategy than simply operating on a whim.