Expect a bounce tomorrow and, just as I posted earlier today on the Q’s 60min chart, it will be the quality of the bounce that is most important. Recently, when there has been a drop similar to today’s, the market has climbed all the way back within a session or two so it will be important that this same dynamic plays out tomorrow and Thursday.
Here’s what longs have going for themselves tomorrow:
RSI’s on the 60min charts of SPY, IWM, IYF, SMH, QQQ, & IYT have dropped below and closed below 30 today. RSI on DIA closed at 31, which is probably close enough.
$TRIN closed at 3.39 and is showing extreme oversold.
$NYUPV closed at 79 when anything at 80 or below indicates extreme oversold.
88% of volume went into declining issues and so this is too showing an oversold market.
All of the above should cause a positive reaction in the markets sometime tomorrow. Could be some residual selling early, which is often the case after a 100pt drop the previous day. If there is selling at the open, this will just push things deeper into oversold territory. However, if there is a bounce it may not amount to much so be careful if you decide to play the bounce, should it even materialize.
Daily chart of Q’s. Of all the MA’s and indicators on the chart, I am watching the ADX most carefully. With the Q’s now below the trend line and with the ADX rolling over, there is a possibility that the up trend that has been in place since the summer is coming to an end. If this does in fact turn out to be the case, then the Q’s are heading much lower.
I’m still looking for that big pull back. $SPX/w $VXO and $SPX/w $VIX charts that I’ve been following for several weeks put in new lows on Monday indicating that fear was completely absent in the markets. When this happened on August 20th, market went into a consolidation, but this time might be different.