Will Short Covering Lead to New Buyers?

The market is looking to gap higher this morning, adding to yesterday’s short-covering rally. Technology stocks are leading so far. But with trader inventories heavily skewed long, there is always the potential for early correction this morning, and then we will see.

Typically, the market will turn back lower from this zone to retest the Sunday night lows before we confidently call this correction over. Time-wise, the cycle trough does not pass until mid-February. So the jury is still out.

At least for now, the frosting is off the cake, but we have no clear buy signal. Volatility remains higher than normal. On a positive note, the 50-day line provided support, and we have not often visited that line since the March 2020 low.

If you are trading this, be careful. We await our next buy signal, so stay alert.

A.F. Thornton