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Why You Shouldn’t Trust The Gap On Monday

By Kurt Osterberg · On April 15, 2018

In Thursday’s commentary I suggested that the market would follow any big reaction to the XLF ETF and suggested the following course of action should a big move occur.

“So how should you use this opportunity to have one day potentially tell us so much about the market, based on one simple ETF?

  1. Carefully – There is a chance that it will not move at all. The opportunity is that if it does have a big move, then you’ll know it could be an important indicator throughout earnings season.
  2. Patiently – Don’t assume the open will provide “the answer”. Where it closes the day is more important. In fact, how it follows through beyond Friday’s range will ultimately be what you want use as your market indicator going forward.”

One big take away from Friday is that the talk about earnings season is that the numbers are going to be strong. This sets the market up to be easily disappointed.

So while earning season is sounding like a “positive”, we need to be very cautious of any significant down momentum.

The next step after Friday’s weakness is to see if the market follows through to the down side in the XLF and the general market.

Like Friday, don’t read too much into the open as it is now complicated by the U.S. attack on Syria Friday night.

The attack on Syria was well timed if Trump was considering how the market would react, but I’m certainly not suggesting this was a consideration by his administration. It was well timed because the initial market reaction to the attack would be to drop because of the fear and uncertainty of “what’s next”. However, the weekend has enabled traders to digest the news, and hear that the intention is not to escalate the attacks.

As a result, I would not be surprised if the market opens higher on Monday, but I’d prefer a lower open because that would test the resolve of the bulls.

Here’s my plan for Monday.

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Kurt Osterberg

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