As many of you know, I've been scaling out of positions as this rally has progressed. To be honest, I did not expect Monday’s massive gap—it caught me off guard and had me wishing my holding muscles were a bit stronger. No one is immune to FOMO, and I’ll admit, I felt it a bit this week.

But here's the difference between successful and unsuccessful traders: successful traders don’t let FOMO override their plans. They stick to their process and diligently plan their next moves.

It might sometimes look like I’m making market predictions and then being right or wrong based on those predictions. But in reality, I’m not trying to predict anything. I’m setting up scenarios based on probabilities and mapping out what I’ll do in each case. That’s our job as traders: react to what the market gives us—not to try and guess what it will do. If our success depended on knowing the future, we’d all be in serious trouble.

This week’s gap up and strong follow through after the extremely bullish push from the lows shows us that the bulls are here and ready to fight tooth and nail for higher prices. The news has not been that spectacular and we are now well above the Liberation Day levels. This kind of price action weakens the case that this was just a bear market rally off the lows. I’ve been leaning that way for a while, but the market grinding higher day after day is making that less and less probable right now.

That said, I still expect a decent correction at some point. I think the bulls buying right now and chasing this move higher will eventually get shaken out in a pullback that resets the metaphorical rubber band and sets us up for a push to new all-time highs later this year.

However, if we gap below the strong support level at $575 and then start dropping vertically, that would be a big red flag—and it would seriously make me question whether this entire move was just a very sneaky bear market rally in disguise.

Let's break down the arguments for both the bulls and the bears right now.

The Bull Case: Riding the Momentum

• Sheer Power of the Rally: The bullish move that ignited from the April 7th lows is undeniable in its strength and momentum.

• Strong Support Levels: The SPY now boasts significant support in the form of the 100-day and 200-day SMAs, coupled with that crucial horizontal support at $575.00.

• Key Resistance Breached: The upward push has decisively gaped above and broken through important resistance levels.

• Bull Market Trendline Reclaimed: The QQQ has successfully reclaimed its bull market trendline.

• Deep Retracement: The recent rally has retraced a larger portion of the previous decline than typically seen in a standard bear market correction.

• Historical Precedent: One of the most fundamental tendencies of the stock market is its long-term up and to the right direction.

• Individual Stock Strength: Many charts, like Microsoft (MSFT), suggest that individual stocks have completed their corrections and are resuming their journey back to new all-time highs.

• Dollar Debasement: The ongoing and likely accelerating debasement of the US dollar due to massive debt will continue to funnel money into hard assets, including equities and crypto. It’s the only way to escape the debasement.

• Market-Responsive Administration: The current administration has shown a willingness to listen to market signals, as evidenced by their pivot on April 7th due to bond market pressures. They also have a vested interest in a strong stock market as a measure of their policy success.

• Favorable Timeline: The current pause on tariffs and the focus on positive trade negotiations create a supportive environment for the market at least until July 9th when the tariff pause ends.

• Anticipated Dip Buying: When the inevitable dip occurs, strong buying interest is likely to emerge at key SPY levels like $575, $550, and $530.

SPY Bull Chart

The Bear Case: Lingering Concerns

• Corrective Pattern: From a technical perspective, the rally off the lows still exhibits characteristics of a corrective three-wave wedge pattern, which typically resolves to the downside.

• Echoes of 2022: While this week's action has differentiated it, the initial bounce shared striking similarities with the first bear market bounce of the 2022 correction.

• Waning Volume: The volume supporting this rally has been decreasing, which can be a sign of weakening conviction, and a correction.

• Greedy Sentiment: Market sentiment has swung back towards greed, potentially allowing larger players to sell into this exuberance at elevated prices.

• Uncertainty in the Bond Market: The bond market remains uneasy, with TLT testing its lows as buyers remain hesitant despite lower inflation – perhaps signaling deeper concerns about the debt situation and potential future inflation.

• Debt Refinancing Challenge: The US faces the daunting task of refinancing $10 trillion in debt this year, and rising yields (like the 20-year testing 5.0%) will lead to significantly higher debt payments.

• QE Dilemma: If the Federal Reserve steps in with quantitative easing (QE) to support the bond market, it risks reigniting inflation—further discouraging bond buyers and creating a vicious cycle of expanding QE and ballooning government debt. While this could ultimately propel equities higher due to massive money printing, the early stages of this scenario would likely act as a bearish catalyst.

SPY Bear Chart

Navigating the Path Ahead: Planning Our Moves

Given that the current probabilities favor the next dip being a buying opportunity (with a lower chance of a significant breakdown), now is the time to strategize our entry points, target buy levels, and set our stop and alert levels. As long as we manage risk effectively, the next pullback should offer a compelling risk-reward scenario heading into the summer and early fall.

However, we must remain vigilant. A sharp, vertical drop triggered by negative news could quickly shift the probabilities towards a retest of the lows or even a deeper correction. We'll be closely monitoring the nature of any pullbacks in the coming weeks.

Personally, I'm looking to buy the dip in Bitcoin (BTC), as well as fundamentally strong names like Microsoft (MSFT), Meta (META), Taiwan Semiconductor Manufacturing (TSM), Tesla (TSLA), Micron (MU), and potentially Advanced Micro Devices (AMD).

Stay nimble, manage your risk, and let's see how the market unfolds!

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