The selling pressure is increasing and the market has not been able to bounce.

PRE-OPEN MARKET COMMENTS TUESDAY – The market shed 5% in a matter of days and buyers have rushed in to buy these dips in the last year. A bounce was likely and the height and duration would signal how aggressive sellers are.

The snap back rally Friday reminded us that bull markets die hard. We saw follow through buying overnight and Monday the market gapped up to the 50-day MA. That move was instantly slapped down and we saw a nasty gap reversal. The selling pressure was steady and the market closed below Friday’s low. This morning, the market is below Monday’s close and overseas markets are weak.

There’s no question that sellers are in control. Trump’s tariffs will be enforced today and we can expect new “reciprocal” tariffs. This was something he ran on. The market discounted that he would actually go through with his plan and now reality is setting in. I expected to see selling pressure last month.

The tariffs are grabbing the headlines, but the bigger problem is a global economic slowdown and rising inflation. Central banks have been cutting rates because they are more concerned with the drop in economic activity than they are with rising prices. This is my biggest concern and if activity falls off a cliff, credit issues could surface. The Atlanta Fed is forecasting -1.5% GDP growth in Q1.

The first drop after a bull market is always tough to trade and the rebound Friday was a classic example. When everything looks like it is falling apart, you get massive snap back rallies. They destroy novice traders. How is anyone supposed to trade when it’s like this? You can throw in the towel or you can learn how to trade it.

In the first stage of the drop, buyers are close by so you should expect big snap back rallies. You short when those bounces hit resistance. You add on confirmation and you take gains into those deep air pockets. The goal is not to squeeze every nickel out of the move, the goal is to take massive gains on your shorts before the snap back rally comes. Sometimes your timing will be great and sometimes you will leave some “meat on the bone”. There’s no looking back.

Eventually the trend reversal will be obvious to everyone and the bounces will not be as tall and they will not last as long. That is a sign that the selling pressure is building and that you can ride trades a little longer. You always want to take gains into deep sell offs.

Look at the 100-year chart of the S&P 500. When you are shorting, you are always trading against that trend. Out of nowhere the Fed will mention that they are leaning towards a rate cut. That sparks massive bounces that destroy shorts. They want to destroy shorts, that keeps the market from melting down.

The market takes the elevator down and the stairs up. When you get on to these moves, the gains will be huge. There will be times when you don’t get a chance to add to the position. Ride what you have. If you see a green candle, no problem. Watch for it to get hammered right back down. That serves as confirmation that the move has more room to run. If the candles are tiny and compressed, a bounce could be setting up.

The market is spending more time below the 100-day MA and that is a sign that sellers are in control. The gap reversal yesterday is a sign that sellers are in control. I believe the economic numbers this week are going to be “soft”. We are in the initial stages of a trend reversal so the “bad news is good news” crowd will try to spin this as a positive. I’m not in that camp. When the Fed is forced to cut rates it’s because economic conditions are deteriorating.

The overnight tone is bearish. I hate chasing gaps, but I suspect that this will be a gap and go lower. The 200-day MA is in range and we should make steady progress towards it this week. If you have shorts on, try to ride them.

If you are on the sidelines, don’t worry that you are going to miss the next move. We are going to see plenty of movement from this point forward. January and February were tough, but we are going to break out of the range and there will be plenty of action. Now that we have confirmation of selling pressure, we can take more of a directional stance. Let’s see how the market opens. If we drift lower right away, don’t chase. Look for stocks that are just starting to crack support on heavy volume. That way you won’t feel like you are chasing. If the market bounces into the overnight gap, that would be our best case scenario. We want that bounce to be wimpy. When it stalls, we will have a great entry point for shorts and that bounce will reveal relative weakness.

Support is at the 200-day MA and resistance is at the 100-day MA.