There is compelling evidence for both another sharp drop in the coming weeks and a meaningful bottom. The weight of the evidence leads me to think we are headed significantly lower from here. Or perhaps better put, i'm willing to miss fresh + trading opportunities to the upside for now, because the downside risk is unusually high. Earnings complicate things as well from an investing standpoint.
Buyers Wednesday and Thursday did a fantastic job buying with a cushion.
The price structure in the indices are pretty fragile. Last week's late week saves were impressive and saved some uptrends. There are open measured moves significantly lower all over the place. By the way, there were no price divergences on the recent low.
Right now there is very little in group relative strength analysis that supports any market bottom. The price structures mostly suggest continued defensive positioning. The one interesting space shaping up is housing and home maintenance. That might be the most bullish thing I've seen this week. Or it might just be a sign folks are taking that extra gas money to do necessary repairs on their homes.
Sentiment makes as compelling a case as any for this current bounce to be meaningful. The Ebola story went from stable to completely out of control on a very small scale in just a few days. If we measured the RoC of the story, momentum likely bottomed out at least near term.
The central bankers think they can keep the markets up, but the broad worldwide picture seems to indicate it's too late. The law of diminishing returns has been in play for years now, and QE has been reduced to a crutch to keep the European bond market together. That'll only last for so long.
Volatility is awesome right now. If you lack conviction in stocks, you can play other markets. Short Nat Gas has been a trade that I've shared on stocktwits. The movement is spectacular with gap downs and rips during the day. Also, the short yen trade looks pretty interesting.
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