What started out as a nice consolidation day turned into more of the same: A vicious sell-off.
It is time to start considering whether things are different this time. In a previous post, Examining Market Tops, we identified the typical correction pattern of several series of moves down with bounces in between. It is possible that this pattern may not come to pass. Traders should be developing a plan that includes the possibility of a steeper sell-off, with very little consolidation.
We know that history shows a bounce should be forthcoming. The fact that the market continues to sell-off in the face of oversold conditions is a telling sign. Remember, these moves down typically end in a capitulation or panic event. We have had neither, yet. It may be that there is no bounce, just a steeper move down, ending in a panic or capitulation day.
With many traders waiting (hoping) for the retail sales to provide a tradable bounce, and the same traders now realizing that a bounce from the Black Friday sales is not going to happen, my guess is that the panic sets in sooner than later.
Instead of watching for a bounce, the key indicator will now be watching for capitulation and panic. Unfortunately for the bulls, today’s sell-off did not have enough volume on the move or enough negative sentiment to be considered panic or capitulation.