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We've all heard the phrase "what goes up must come down."
This, of course, is not normally the case with the markets – except when we're stuck in a correction or bear market.
And that is the biggest question for traders: Are we in a correction or an outright bear market? From where I'm standing, it's starting to look, smell, and sound like a correction at minimum.
The S&P 500's "rip your face off rally" over the last nine days has put an extra 10% in investors' pockets.
It's also done a good job of getting people thinking about the possibility that an "all-clear" signal may have sounded for stocks, thinking that this is the time to be shoveling cash back into them.
Well, unfortunately, this week's gains are starting to look even more like a sucker's rally.
The S&P 500 started Thursday off on a weaker note, which is making sense. The last week's daily volume has been lightening up in almost all sectors. We've had this talk before, but I'll reiterate that lightening volume usually signals that a directional move is getting ready to reverse.
This morning, it reversed.
Complicating the picture is earnings season. It's less than a week away, which means that we should be preparing for an increase in volatility.
That volatility is likely to be very, very profitable, but the question is: Which direction will that volatility take?
Well, earnings warning season is already in full swing. It's giving us a big clue.
About the Author
Chris Johnson is a quant - he's obsessed with building and perfecting mathematical models that allow him to predict, with startling accuracy, the direction of the markets, entire sectors, and individual securities. For the last year, he's been researching and building a new system that lets him move swiftly in and out of the hottest stocks in the market for life-changing gains - entirely on his own terms. The results of his newly-minted Night Trader system are nothing short of amazing.
Chris also contributes to Money Morning as the Quant Analysis Specialist.