The markets are weak again this morning, with major indices at their respective 200d moving average. Hedges are working and cash is on hand if this turns out to be an opportunity. We need to see institutions active today as confirmation.
Summary
S&P 500 – SPX 200d
We’ve delineated the 200sma and 200ema zones; we use both. An inflection point in this area is assumed and anticipated over the next few days. Three (3) distribution days this week leave RSI in oversold territory imparting a 10% (+/-) drawdown from all-time highs.
Breadth at Extremes
Time and again, when breadth reaches these levels, its time to look for opportunities. We’ll put some of the cash to work once we see institutions are actively doing the same. We will follow their lead.
NYMO (-100) readings are rare. Reversals don’t always happen the same day, but they do eventually reverse in the days that follow.
Additional indicators were discussed on Monday and Tuesday. All of them are at an extremely oversold state as of Wednesday’s close. VIX remains at highs (27.56) and the Put/Call ratio is fading at (1.23). Both show signs of reversing further confirming an imminent bounce.
The number of stocks trading below their respective 50d moving average (SPXA50R) is in a washed-out state as well. Institutions are circling. In addition, the advance/decline percent oscillator is below (-30%). This always leads to a bounce.
At a minimum, we anticipate a dead cat bounce. It’s anyone’s guess how far this buying opportunity will take the equity markets in the weeks that follow. With this in mind, we’ll reassess the market conditions on a daily basis and update you as necessary.
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Happy Trading,
Vinny
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