Momentum Monday – Oversold Bounce

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We saw a light bounce from oversold levels in the indexes. Now, the question is if we can see a follow-through day next week. This scenario is still in play despite the weak close on Friday. 

The stock market has been in a correction since August. The only time most stocks bounced in the past couple of months is when interest rates pulled back. The correlation is crystal clear. It is all about interest rates until the next earnings season starts which is in about 3-4 weeks.

It’s hard to trust any rally for too long unless rates start to really come down. The 10-year yield is in a notable uptrend, which is a major headwind for equities. This doesn’t mean that we can’t see short-term bounces in stocks. We saw one in late August. It lasted a couple of weeks and then cratered. We potentially saw the beginning of another last week. Let’s see how long it lasts. Those frequent changes in direction can make you dizzy. This is why I keep saying this is not the time to be aggressive on both the long or the short side but it also doesn’t mean that I am not taking advantage of select short-term trading opportunities. One has to be super nimble and operate with a scalpel in this environment. I rather operate with a mega tractor but now it is not the right time for it.

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