The Gilmo Report

May 6, 2020

May 6, 2020 4:07 pm ET

When you take one-part Infinite QE, one-part Good News at the Margin, mix them up in the market and set the algo switch to “BUY,” it’s not difficult for the market to rip a big rally right in everyone’s faces. And that’s why I keep long ideas in my back pocket at all times, right there with my short ideas, and then let the set-ups materialize as they will. This is the essence of the 360-degree approach.

Based on this idea, then, we should not be surprised when bad news at the margin sends the market the other way, as it did last Friday. Yesterday, news was at play again when investors were treated to the by-now classic rug-pull where the bottom suddenly drops out of the market intraday.

The five-minute chart of the Dow from yesterday illustrates this nicely. A gap-up open churns around all day until the last hour of trade, at which point the rug is pulled and the market drops suddenly. This is something that traders have to be on the lookout for since when its happens it is not clear whether it is another random shakeout or the start of something more severe.

 

 

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