The market got really, really stretched to the downside this morning. When SPX tested the last swing low it found some buyers. SPX wiped out a big six day rally in about a day and a half. No wonder some traders stepped in. The end of the day saw another big move up that was probably a lot of short covering. Breadth was -61%. New highs dropped way down to 36. New lows spiked up again to 616. That is the most new lows since Feb. 2016.
The futures got below the mid Nov. lows. They are almost back to the 50 SMA after the bounce. The last bar is a bullish engulfing bar. I guess that could open the door for an actual bottom, but I think that is unlikely.
The red count increased a bit, but remains below 50. This could be a huge positive divergence or a sign the market has a lot further to go before getting oversold.
The SPX 50 DMA is about to cross below the 200 DMA so the death cross talk will be all over the media soon. In a bull market that is usually about the time the bigger corrections end. There seemed to be considerable optimism on CNBC today. I heard famous investor Leon Cooperman on the phone with the TV hosts. He was busy telling us about how the fundamentals are fine. This is nothing to worry about. He said bear markets do not come out of nowhere. He talked about 1987 and how the crash did not cause a recession. I wished I could have asked him if he ever saw a bull market top before the market was down 20% or more. I am pretty sure the answer would be no. Fundamentals always lag price. Always. The action in this market is consistent with being in a bear market no matter what the fundamentals might indicate. That does not mean the market is going to crash immediately, but I think it unlikely the major indexes make new highs anytime soon.
The market often gaps up the next day after a big reversal like today. If that happens it will be interesting to see if the upside lasts all day. Like every other attempt at a bottom in this correction there was no sign of selling exhaustion. The market got stretched and sellers stepped back and buyers stepped in. Many of those buyers were probably people taking profits on shorts from the windfall. I suspect we will see this low again in the not too distant future. SPX's 20 DMA is at 2720. If SPX rallies back to that area that could be a place the sellers show up again.
Bob
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