Market Analysis and Trades for 5/1
"Liquidations Strengthen the Market"
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The weekly post and video for SPY 0.00%↑ and QQQ 0.00%↑ should be reviewed prior to this. Link to Market Analysis for The Week Ahead
Every once in a while, the market gets just a bit too long on short time frames. Most traders generally point to oscillators and indicators but to me it is the nature of the participants that matter. The last couple of days had felt like a lot of shorter time frame traders chasing bids, while earlier longs were passively selling the whole way. When I see this, I look for a liquidation break. We got that today. If you’ve followed long enough, you’re well aware that these liquidation breaks (given bullish structure) strengthen, not weaken the market. This separated weak handed longs from their positions and has the opportunity to place them in the hands of stronger buyers at much better prices. A secondary benefit is it generally will trap some weak handed shorts that chase the move lower as well.
Long before the enormous end of month flows and positive earnings, sellers had fumbled. The opening drive on the true gap down was lower as late longs liquidated their positions. Low of day held at the single prints from 4/24 and price reversed. Sellers really needed to defend by Monday’s low or the opening print at worst. Once that was reclaimed and bid it was over for them.
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