Gap Down Reversal - Worst possible scenario. Market overview Apr 21

It was an impressive day for the bulls. Their appetite for buying was relentless all day today. Futures were down big and lots of people were shorting in the premarket. The smart traders were actually buying in the premarket. The result, we reversed the opening gap down in a big way and on big volume. Although we drifted back down after 10:00AM, Tim Geithner's remarks about the banks brought the buyers back out in force and we went up pretty much all day.

Here is my theory about what happened. Yesterday's huge down day set up some fantanstic short opportunities in the market. These would be triggered on a move below yesterday's lows. Since we gapped down, everyone was scrambling and chasing to short the early weakness. The 'smart' traders who shorted yesterday starting covering. With the headline news regarding the banks coming out, more short covering. Buying begets buying, and the shorts were running for cover all day. The IDEAL situation would have been a gap UP followed by a reversal. This would have crushed the hopes of the bulls in my opinion. Now you have emboldened bulls who feel that the market will never go down. This will only make the fall that much harder I believe. It would be much healthier for the market in the long run if we can digest/consolidate this massive rally, and pullback just enough to let the bulls who 'missed' the rally get on-board.

It is what it is, and we have to adapt and trade accordingly.

My trades today were a long in GS, and a few scalps of SDS (long and short) based on my signals and moves from support/resistance. My missed trades of the day was once again a trade (short) in SKF late in the afternoon which I did not take, and a move in GBPUSD which I highlighted on Twitter before market opened, and was good for about 150pips move.

I honestly don't know what to expect - I still feel we should be consolidating for a few more days, but it is very possible we move in a range for a while until the stress tests results come out. It feels like a random market with irrational moves. But this is what makes it a market. If it were easy, we'd all be rich.

I will continue to trade in an intraday scalping mode for now.

Good luck in your trading.