Second day with the market going deeper into extreme oversold territory. We should see a bounce tomorrow but only because breadth indicators are saying that the bulk of the selling is over, but don’t quote me.
Zweig Breadth Thrust dropped to 35.07 today. However back in the 3rd week of November 2011, ZBT dropped below 40 and stayed below 40 for four sessions. Then, on November 28th, the $SPX shot up 33pts.
$NYSI dropped by 103 pts today. Back during the 3rd week of November, $NYSI dropped by about this same amount on two consecutive days, and then that big 33pt rally.
$SPXA50R dropped to 31 today. Back during that same 3rd week of November, $SPXA50R hit 21 on two consecutive days, and then the big rally. I don’t know if $SPXA50R will drop down closer to 20 this time, but nothing says it can’t.
$NYUD:$NYUPV hit -13.49 today. It can go lower but it will take another big down day for that to happen.
RSI on the 60min $VIX chart rose above 75 just after 3pm, then rolled hard closing at 69. $VIX ought to pull back here, but then what do I know?
This is all well and good and the market could be setting up for a bounce, but, IMHO, there has been a shift in dynamics with several other breadth indicators breaking down. While I will never advocate shorting the market, it does appear that the safer trade for the moment is shorting the rips as opposed to buying the dips.
In times like these, cash is king.