This was a capitulation climax selling event. But keep in mind that we had a couple of these in mid-May, and then the market rolled over into the June lows so while capitulation is something you find at bottoms capitulation by itself does not necessarily mean we have seen the bottom.
The following readings are the kinds of readings you will see at bottoms:
$NYUPV closed at 65, when 80 is the line in the sand.
$NYADV closed at 320, when 500 is enough.
$NYAD, the daily, closed at -2436, when a reading below -2000 indicates extreme selling.
$NYUD:$NYUPV closed at -10.68. This really should close at -12 or less so while this is certainly a negative reading it really isn’t negative enough.
$NYMO w/Bollinger Bands blew through the lower BB today and this usually means an oversold market. If you remove the BB’s and just look at where $NYMO closed, you will see that it is in the an area usually associated with a market bottom. In May, $NYMO dropped to -100 a couple of times and something like that may be waiting in the wings.
$NYSI dropped by 87 pts when drops of -70 to -80 do indicate exhaustive selling. However, this dropped by 100pts a couple of times in May so we may see another reading in this area or even lower before this decline ends.
Zweig Breadth Thrust closed at 36.41, when 40 is the line in the sand. Back in mid-May, ZBT closed below 40 on five consecutive days so we may see closes in this range again and again in the days ahead.
$SPXA50R 22.60 when any reading below 25 is considered oversold. However, this went into the low teens back in May and early June so don’t be surprised to see readings that are still lower.
$BPSPX closed at 63.60 today and this is not low enough. Back during the summer lows, $BPSPX dropped as low as 44 so I don’t think bottom fishers will be safe until this gets to 50 or less.
91% of today’s volume went into declining issues, another sign that the market is oversold.
$VIX closed near 18 today and this is indicates border line indicates complacency. Where is the fear? $VIX should be in the 20’s by now and since it isn’t then what’s it going to take to push $VIX up to 20? A 300pt drop? A 500pt drop?
Based on the above, it does appear that the market is nearing a bottom, but don’t front run it because we may just see another scenario similar to what happened in May. I think the only safe play is going to be to use the Investor’s Business Daily criteria. You will miss the bottom but at least you’ll have some assurance that the market has bottomed, which no one has now.
The monkey wrench and wild card is AAPL. In the way olden days of the Dot Com bubble, AAPL dropped right along with everything else. From the 2003 lows to the 2007 top and the 2009 bottom, and every pull back and rally since then, AAPL has moved in sync with the market. Now AAPL has decoupled and is dancing to the beat of a different drummer. This is new and different and there is no way to know how this is going to play out since the market has not had to deal with this kind of dynamic in the past. I have no idea when or where AAPL finds its bottom, but it could be a couple hundred dollars lower. Until AAPL does bottom, then there’s no safe way to play the Q’s or the $COMPQ. AAPL is just too big and powerful. Sometime late next winter, the weightings in the $NDX will be adjusted but until then as goes AAPL so goes the Q’s, the $COMPQ, and, to a lesser degree, the $SPX. If AAPL were in the Dow we’d have gone into the abyss by now.
$SPX is now 110 pts off its closing high from mid-September, and it’s probably not over yet. We busted right through the support level in the 1364 area and blew away any chance that last Friday’s shooting star doji would lead to a turning point in the decline.
I’ve drawn the support lines at places where previous declines have stalled and reversed. It’s interesting that those remaining support levels are also in the area where those Fib confluence zones are.
The RSI 14 has now dropped below 30 and this indicates an oversold market so one would think that we should bounce and/or bottom right here right now. Not so fast. Back in May the RSI dropped down to 23 before the market rallied. That rally last all of about six days before the market rolled over into the June lows. At the June lows, the RSI only dropped to 28, setting up positive divergence. We may get something like that this time around and if so then the whole process will take two or more weeks. Just something to watch out for.
Stay on your toes and watch the $VIX. The market is volatile now but if/when the $VIX rises to and then above 20 the volatility will increase and this is just code for more and more downside.