Stocks lower, but well off session lows

sp0122.pngStock indexes opened sharply lower, but closed well off the session lows. You can see the large up candle on the right side of this chart. This was the day session S&P etf. The over-night session of the S&P futures shows a somewhat more bullish looking candle, with a long tail forming a hammer, although with a slightly large head. If the Fed hadn’t cut rates the market would probably have been down a thousand points. The three day pivot (yellow dots) certainly has held the price action well through all the ups and downs. There was little reason to have been long this market. This chart shows a good example of why I look at a stochastic based indicator in preference to indicators based on the close or typical price. The double stochastic (in the middle sub-graph) factors in the range, including the current bar, whereas the CCI indicator in the bottom sub-graph does not. It only averages the high and low and close, but does not care where the close occurs in relation to the range, hence the indicator still continues down even though price closed near the high of a large bar. The stochastic turned up with a slight divergence, which is much more useful and timely information. Common charting wisdom would indicate some sort of bounce here, and then a likely re-test of the low. A bounce does seem likely. I think a re-test of the lows sounds a bit too textbook. To confuse common wisdom the market will probably either not make a new low and only re-test into the upper end of the downthrust bar, or put in another leg down. My gut says a play on the long side for a bounce is a complete hipshoot right here. Some hipshoots work out. I always prefer to let the trend indicators turn up first, and then play the reaction back to them. Sometimes it’s hard to wait when the market gets this extreme. Maybe I’ll flip a coin.
One negative as I write this is the possible long overdue bursting of the Apple bubble. The stock is down sharply in after-hours trade. Sometimes these drops reverse by the US market open, but if not there could be some spillover into the general market. The stock was over 200 a few weeks ago. It will probably be seen as a great bargain here by the true believers. Maybe it is, but the technical damage to the stock is severe. On the plus side many overseas markets are higher.
Gold put in a technical reversal back up today, and the trend is still up, and momentum turned back up from an oversold level.
An index that I used to follow but mostly gave up on when the crowd started overusing it and its signal became less timely, is the CBOE Volatility Index, or VIX. High levels indicate trader uncertainty and even panic at times. The only interesting thing I see here it the double top between the price today and the price right at the market low on Aug 16th. In both case the VIX spiked up and reversed back down to close near the low of the range. On Aug 16th the exact low day was signalled, while price action looked extremely negative. So in the case of the Aug 16th low the VIX was extremely timely. Maybe it will be this time, too. On the other side of the coin, the VIX general levels have been increasing gradually over time, so perhaps volatility is generally increasing, with perhaps more spikes in volatility ahead, and pushing to higher VIX levels. There are always two sides to every coin. If there were only one side, then all traders would be on that side, which would then be the wrong side.

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