I write this as the S&P500 is set to open at fresh record highs. Yes, every single top call made since the dawn of man will officially be wrong at the opening bell this morning.
The key component of this rally since the lows on Christmas eve, ironically enough has been weakness.
What do I mean? Quite simply morning weakness has given way to afternoon strength on too many occasions to simply ignore. Clearly it has that buy the dip ring to it. Or that rope a dope ring to it.
Back when the $SPY was in a tailspin at the start of 2016, the bottom came and the price action switched from dope a rope to rope a dope.
Over the last 10 years when the market gets an early pull back, the action usually reverses, with the dip getting bought. This happened so frequently in 2009, and 2010 it created a Pavlovian dog like resposne for market participants.
In October 2018 with stocks having just made all time highs... the action turned from buy the dip to sell the rip. Rope a dope to dope a rope.
Morning Mourning to Afternoon swoon. This was the price action at the start of October.
This is what followed.... the white arrows represent the morning rips with each followed by afternoon swoons....
and of course we know how 2018 ended. At least into the Christmas eve lows. It was an ugly fall...
and now... with the market in rally mode posting a tremendous start to 2019 and new all time highs, the action is the opposite.
Morning Mourning, as prices fall to start the day.
Yesterdays trading day was a textbook example of this price action.
and the recent overall price action mirrors yesterdays moves.
More often than not we get a pullback after the open, sometimes a sharp one, other times a more modest one, before the action reverses and ultimately heads higher.
Morning weakness giving way to afternoon strength.
The key take away being, when the pattern changes, there is a good chance the market is ready to correct. Meaning as long as the afternoon swoons keep at bay the market will continue to head higher.
When the market does correct again it will likely be preceded by the same pattern we saw back in October and vice versa.