And that would normally lead to a market bounce for the very short-term but there’s never a guarantee this will unfold. The first put call reading today was 2.44. This reading was only exceeded in 1987 at the end of the bear market with a 2.97 reading. 2.44 is extremely rare thus it would be surprising if we didn’t get some sort of bounce in the coming days. All that said, the selling pressure is amazingly strong down near those critical lines in the sand, or the 200-day exponential moving averages on the major index daily charts. We were down as much as 175 on the Dow and 44 on the Nasdaq before finding a bounce. The S&P 500 touched its 200-day at 1103 today and that was the low for the day.
If you’re a bull it didn’t look good but once again those intense readings in the put call options market probably held the market up for now. That doesn’t mean it will hold things up permanently or even tomorrow, but it should, although futures are already lower after hours. Less on the Nasdaq due to good earnings from Applied Materials (AMAT). With a close at 1115 the market held the 200-day exponential moving average by 1%, which is not exactly something the bulls can feel secure about.
The financial’s held up decently well all day, which was good to see as that area has been the weakest area of the stock market for quite some time. If the financial’s had been weak today there is no doubt about the fact that the S&P 500 would have easily lost the 200-day exponential moving average. Not a chance it would have held, thus again, we saw enough rotation in the market to keep the S&P 500 from breaking down.
However, if you study the financial stocks overall, they’re not exactly looking like a pillar of strength. Tenuous at best for sure. Goldman Sachs (GS) bounced from extreme levels of oversold on its daily chart and it’s still oversold although we know charts can stay oversold for a long time when things are nasty. Most of the financial’s were tremendously oversold so that really accounts for why they held up at least some today. Nothing to get excited about but at least they are at deeply compressed levels of oversold and maybe that gives the market some life as well.
The S&P 500 closed on December 31st at 1115. It closed today at 1115. Dead flat for the year, although I bet the last few weeks make it seem as if the market is down huge for the year. Massive moves up and massive moves down have been the way this year. Extreme volatility, and in markets such as these, most folks have a hard time doing well because the whipsaw makes them feel out of control and therefore they take their plays off sooner than they probably should. When you have intense volatility due to high Volatility S&P 500 (VIX) index readings, it’s best to keep it very light in terms of market exposure unless you like to feel alternating feelings of euphoria and despair all within ten minutes time. These types of markets beg for less exposure until the VIX can get back to levels where things lose their intense volatility. Just another reason to keep things very light here.
The single hardest hit sector in this down turn has been the world of commodity stocks. Just complete and total annihilation. Not that the rest of the market hasn’t been hit hard as well but there’s no questioning where the greatest pain has been felt for traders and investors who love commodity stocks. The ProShares Ultra DJAIG Commodity (DJAIG) put in a doji today off a long move below its 200-day exponential moving average. it’s very far below that 200-day thus it’s due for a bounce and often a doji off a long-term move down on a gap does give a stock a bounce for the short-term. Never a guarantee but it should provide short-term relief. It doesn’t mean you have to play these stocks for bounces as again, keeping things very light is the best way here until the overall market gives a true bottoming stick or a bounce up that says short me.
There are times when the best thing to do is to keep things very light overall. That often means all cash or mostly all cash, and that can be very boring for people, no doubt. I understand the desire for play at all times but that’s not the way a market works. The market will often be unplayable for spells as things get a chance to work off overbought sentiment conditions that just took place. We have unwound from 37.3% too many bulls to 19.1% too many bulls. That’s a nice start but is only neutral. It would take near par levels to get things too bearish and often more bears so now sentiment is only neutral and favors no one. Cash is best here except for the occasional play here and there. That will change some day but it’s not where we are now. Accept our place in the evolution of the market knowing things will open again Some day soon down the road.
Peace,
Jack
