Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.

Another day, another strong open for stocks yesterday. But this time, the bears pushed back. Has the consolidation started, and the market will digest recent gains now? Or as they say, one swallow doesn't make a summer?

Let's take a look at the context of yesterday's price action on the daily chart (chart courtesy of http://stockcharts.com).

While stocks have opened yesterday with yet another bullish gap, the bears stepped in. The lower knot shows that they drove prices all the way down to the gap's border, but just couldn't close it. As a result, the gap remains open, and it continues to support the bulls.

And so does the invalidation of the breakdown below the rising blue trend line. Technically, that has been the most important chart development.

The bullish print of this week's candles also confirms that. The bears' attempts have been rebuffed, and the index marched higher.

The daily indicators keep painting a bullish picture - the CCI's sell signal is over while Stochastics remains on a buy signal. While yesterday's volume was lower than that of preceding days, it's perfectly consistent with what you would expect to see in a consolidation. And yesterday's session shows we have just entered one.

That's natural - every bull market needs to take a breather. We haven't seen one since the rebound from last Friday's selloff, and it's our opinion that this is just the beginning of the consolidation. More precisely, shall we rather say correction?

Of course - apart from the apparent coronavirus respite, the market has been pricing in China's announcement to cut tariffs on US imports in mid-Feb when a similar US measure comes into force. What a welcome action in front of the upcoming trade deal negotiation marathon!

Talking fundamentals, today's employment figures take every trader's spotlight. While the bar has been set quite low to overcome the analysts' estimate (and Wednesday's strong ADP figures would support that), it's the market's reaction to the numbers that matters. If you are a trader, keep that on your mind every time you think that in reaction to whatever announcement, the market should move this or that way - and don't let emotions take over.

And indeed, Non-Farm Employment change came in at 225K, beating the modest estimate of 163K. Stocks initially bounced, only to reverse again lower. This means the bulls are making no progress to erase the pre-market losses, as the index changes hands below 3335 currently.

Taking into account all the discussed improvement on the weekly chart and today's premarket action, we haven't yet seen a suitable moment to enter long positions from the risk-reward perspective.

A better entry point can be facilitated by another coronavirus fear flare-up in the not-so-distant future. While stocks are pointing lower today, we continue to think that we'll get a more favorable opportunity to buy down the road. The consolidation of recent gains is only getting started. The bears' return remains likely in the very near term.

Let's quote our earlier conclusion:

(...) As a reminder, we are in a stock bull market. The strong comeback highlights that we haven't seen reliable signs of a market top - thus, corrections are to be bought. And there is still a good likelihood of us getting one shortly, regardless of the improvement in the indicators. Therefore, staying on the sidelines remains the right course of action right now.

Summing up, the S&P 500 outlook keeps being bright regardless of the bulls taking a breather yesterday. While the daily indicators are sending a bullish message, stocks appear ready to move somewhat lower later today. It would still be premature to declare this correction (in time and in price) as over. As a minimum, we can expect continuing consolidation of this week's gains, and increasing bearish involvement not only in the proximity of earlier highs. A favorable setup to get back in on the long side would naturally follow, as the rebound's veracity shows that stock bull market is climbing a wall of worry. In other words, it's alive and well.

Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you.

Monica Kingsley
Stock Trading StrategistSunshine Profits - Effective Investments through Diligence and Care