Stock indexes rally

Stock indexes rallied sharply in the final part of the trading day. It’s becoming normal for a triple digit down day to be followed by a triple digit day in the opposite direction, with most of the move happening very quickly. Today the indexes tried to sell off many times, but was able to hold the lows and short covering and bargain hunters came in near the close. The chart to the left is the Nasdaq 100 etf. You can see in the ellipse how price retested the lows of five days ago. That low was taken out by a few pennies on the etf, and then prices worked their way back up to the opening prices, therefore again rejecting those lower prices. In the final hour prices rallied back up well into the big down bar left yesterday. The S&P had a similar rejection bar, but the bar today did not get down to the level of the low five bars ago. In more normal markets this set-up would indicate further upside, perhaps with a retest of the longer moving average line, and if the pivot of three bars ago is taken out, then further upside might be anticipated. However, these markets are extremely volatile and normal methods and expectations don’t seem to apply. The yellow line over the price bars is the implied volatility of options on the QQQQ. It is a similar picture to the VIX. With extreme volatility and the trend still down, extreme caution is warranted. On the other side of the coin, sentiment is extremely negative, and with some evidence of price rejection at the lows, some sort of short covering rally could be forthcoming. I still prefer to wait for the trend to change before trading the long side. It is tempting to try to pick a bottom, especially when a nice one comes along like in the chart presented here. The severity of the previous decline would indicate to me that this market won’t put in an easy bottom as there will probably still be much selling to cap rally attempts. I wish I could be more decisive, but there are two sides to every market and a trader has to consider factors on both sides.