I warned that the market was in the process of making lower highs and lower lows. Then we got a bounce and some must have wondered if Woodshedder had done gone and lost his mind. With the market again one day away from a lower low, review that post, because what I wrote still applies.
This is really not rocket surgery. The market will eventually break above or below one of the blue lines. If it closes below the bottom line, it will have made a lower low. A break above, and new highs will soon follow. In the meantime, follow your rules, or stay in cash.
We must watch the volume. There has been a lot of distribution on the down days and just average interest on the up days. Volume is suggesting that many traders are headed for the exits.
I fully expect SPY to touch the 50 day moving average, which is currently at $129.86. My crystal ball is looking for another large sell off which takes SPY beneath the 50 day moving average. In a perfect world, we would see the market firm up near the close and retrace most of the losses, closing near the 50 day average, and making a candle much like the one made on February 24th. It would be nice to see volume surge to near 300 million shares.
While some traders abhor volatility, if you know how to trade a volatile market, there is money to be made. Remember that overbought/oversold indicators will tend to be more accurate in a market with increasing (but not skyrocketing) volatility. My custom decliners indicator is signaling a buy for tomorrow while other ob/os indicators are not yet in the sweet spot, but they are close.
Wood, can you do a EEM vs SPY divergence backtest?
I read somewhere that this is the first time in years that EEM has underperformed the developed markets and it might be a sign of an upcoming dip. I don’t know whether to test it monthly or quarterly or YTD (likely due to oil?)
also for fun take a look at the weekly MACD going back 20 yrs. I think if nothing else we are in for some serious chop
it looks like we are in a period similar to early or mid 1999