Failed breakdowns remain one of the most promising bullish setups, and for good reason. The market breaks through important support, sellers pile in, shorts start celebrating, and just when everyone thinks the floor has given way, prices turn around and head right back up. Suddenly, the bears are scrambling for the exits, and what looked like the beginning of another disaster becomes the fuel for a powerful rally.
We’ve seen this movie before.
Quite a few times, actually.
Buying the dip has been a remarkably successful strategy throughout this bull market.
The problem is that the dips are getting deeper, the reversals more violent, and the market seems increasingly determined to make everyone involved question their choices.
No one said this was easy. ;)
Monday was an impressive reminder that the bulls haven’t surrendered.
QQQ surged 3.6%, SPY gained 2.5%, and IWM jumped 3.2%. Equal-weighted RSP gained 2.2%, while EQAL rose 2.6%. Roughly 75% of stocks advanced, with 87 gainers against just 15 decliners in the Nasdaq 100.
All 11 S&P 500 sectors finished higher, with small caps and midcaps outperforming the major averages.
This wasn’t simply a handful of mega-cap stocks dragging the indexes higher. AMD and Lumentum (LITE) were among the standouts, jumping more than 13% and 10.7%, respectively.
But here’s where things get interesting.
What if Thursday’s extraordinary collapse wasn’t primarily about deteriorating fundamentals, but something else entirely?
And what if the bearish reversal that had been pointing toward substantially lower prices has now trapped the bears themselves?
That’s where Monday’s price action gets particularly interesting, and where our trading plan comes into focus.
