Unfortunately the stars are not all aligned, as they were on March 6th. Still, there is a good chance for a bounce tomorrow based on things like $NYUPV, Zweig Breadth Thrust, and 4wk New High/Low Ratio.
But there has been a change in market dynamics. Anyone who understands the basics of my system would have expected a pause day for last Thursday, based on oversold, though not extremely oversold, readings from a few indicators. Fer instance: Wednesday, April 4th, was an 84% down day. That was very close to a 90% down day and so the market had gotten awfully close to being extremely oversold. Also on the 4th, $NYMO tagged it’s lower Bollinger Band, so this was showing oversold. 4wk New High/Low Ratio dropped to 14.90 and so this was showing oversold, as well. But, instead of a pause in the buying, like we’ve seen so many times since the October and December lows, what we had last Thursday was a pause in the selling. Today’s action is proof of that.
So now we’ve seen a shift in market dynamics and it is probably going to be a while before the pendulum swings back the other way. And why would this be so surprising? Over the last three years, the market has run out of steam at about this same time as the “Sell in May” crowd begins locking in profits so they can start planning their summer’s out on Fire Island.
Here is what we have that is showing extreme oversold as a result of today’s action and is the evidence for a bounce of one degree or another for Tuesday’s action.
$NYUPV closed at 68.99, when 80 is the line in the sand. On March 6th, $NYUPV closed at 33.
Zweig Breadth Thrust has dropped to 39.44 so this is showing extreme oversoldness. ZBT dropped to 40.05 on March 6th.
4Week New High/Low Ratio dropped to 7.21. It dropped to 7.57 on March 6th.
90% of today’s volume went into declining issues so this is showing extreme oversoldness.
$TRIN closed at 2.08, which isn’t really showing extreme oversoldness, but it closed at 2.38 on March 6th which I didn’t really consider mega oversold, although it turned out to be a pretty good signal.
$NYSI dropped by 76.92 points and this puts it in the range of other climax selling signals in the past. On March 6th, $NYSI dropped by 87 points, if you catch my drift.
$NYMO closed 10pts below its lower Bollinger Band when a tag of the lower BB is usually good enough. On March 6th, $NYMO closed 22pts below its lower BB.
But $NYUD:$NYUPV closed at -8.39 and I have found over the time I’ve been following this indicator that a reading of -12 or less is necessary in a bottom call thus a reading at -8 is inconclusive.
RSI on the $VIX 60min chart closed at 64.30 so there is wee bit more headroom for this indicator. Since after a day like today there is often residual selling early in the next session, it is possible that the RSI for the $VIX will push up to or above 70 in the early going tomorrow and if that should happen then $VIX will go into extreme overboughtness and should then begin to reverse.
How they raved about the March gains in the $SPX and now we’re within 8pts of giving it all back.
AA earnings after the bell tomorrow and this is often a scary event for longs. If we do bounce tomorrow, it could all come off the table AH.
Ski season is over and my wife and I are settled into our new digs, but I’m not going to start posting here on any kind of regular basis. Forget that. However, I have resumed work on a page that will lay out all the breadth indicators and data that I use along with interpretations. I have no idea as to how long it will take me to get this page up but when I do then you’ll be able to have a reference that you can make your own and consult on days such as today.
Trust me, it’s never too late to develop an intense level of paranoia which, after all, is just a higher form of awareness.
Good luck to us, one and all.