The advance decliners in all three major exchanges were pushing near 80% decline yesterday. This is typically the number we like to look for that marks capitulation. Volume was heavy, but not heavy enough to be considered capitulation. The VIX finally broke its divergence with the market price action and spiked up near levels where the last two market declines reversed. The NASDAQ is honing in on major support; an area where the market has seen the greatest amount of reversal trading over the past 1 1/2 years.
What all this adds up to is the fact that the market is much closer to a tradable bounce than it is to more pain. Conceivably we could get a wash out capitulation day near current levels that would offer an excellent long side entry.
If prices instead just bounce weakly today, we will likely still be trying to find a bottom next week.
Bottom line here is this: A panic today would be a great buying opportunity. A minor bounce today without more panicked selling would indicate that we should still keep our shorts open and that more selling is likely to ensue next week.
We are crossing our fingers looking for a panic as that's where the best trade opportunity will be.
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