Stock Market Relief Rally... End Of Pullback Or More To Come?

Stock-Markets / Stock Markets 2015 Aug 27, 2015 - 12:16 PM GMT

Today pretty much went as expected. Dramatically oversold conditions not seen in basically forever. A six-day down move that was historic in nature, and caused daily index-chart RSI's to get well below 20, which is extremely rare. The futures were up big yesterday into the same type of oversold conditions, but nearly five-hundred points worth of Dow gains ended the day with two-hundred points worth of losses.

This caused an even more ridiculous oversold condition that was finally alleviated with today's huge up move. So not that we've gotten the expected move off the bottom the next question on everyone's mind is was this the end of the selling? Was this the beginning of the next massive up leg? That remains unclear. Today had to happen to relieve oversold but now we find out more. There is the first headache technically at 1970 on the S&P 500 where there's a strong gap down still wide open. After that it would be a full back-test of the 2040 breakdown. Getting through 1970 won't likely be easy but should it occur it'll be all about 2040.

When markets have a day like today it brings about a lot of hope and that's understandable since people have taken on some incredible pain over the past six trading days prior to today. Half a year's worth of price action lost in just six days. Now that's intense. Many will say it was capitulation and that is always a possibility. I'm not buying in to that just yet and that may be a mistake but I'm not for sale quite yet. Hope can be a good thing but hopefully it won't lead you to do too much unnecessarily. There's no humanly possible way to know what's next but we will learn a lot as we try to deal with 1970 on the S&P 500 first. If you want to be aggressive go for it. If you believe personally that this is it to the down side you should be buying. I have received many notes about varying experts who say the bottom is in for sure. Hey, don't miss out folks if you believe that's the case. I don't buy things that easily, thus, I need far more evidence. I am totally unconvinced for now, and, hopefully, will be convinced shortly since so many of you want to be long. We shall see, but I say today went as expected. Now we see the real market in the days ahead as it tackles back tests.

Sentiment along with terrible monthly charts have been what I BELIEVE has caused the market to have this historically bad six days of action. Amazingly, but not too surprisingly the bull-bear spread is down to 9% from last week's 19% reading. As I always say, fear requires action while complacency requires none at all. That's why the bull-bear spread can drop so precipitously. 9% is a reading that can cause bottoms in the market so it's possible the dirty deed has been done, but, again, I'm still far from convinced. It would be best in my opinion if we could get the spread down in to minus territory, but that's not something that has to take place. More fear would be better but the spread was 46% not that long ago so 9% is wonderful to see. There is still froth in valuations in a large way but that doesn't have to get hit further if the actual bulls-to-bears winds down properly. Only a true bear market can deal with valuations fully the way they need to be. That may or may not be for another time. We shall see but for now we have seen tremendous unwinding in sentiment thus the bulls can feel good about that for sure.

So now we buckle up and see the truth in the days ahead. If the market has truly bottomed, we should the S&P 500 blow through 1970 gap resistance and easily head towards a full back test of 2040 and then it depends on how it sells off from there. We won't have any answers for a little while but it's easy to see what we need to watch for. I would not even think about getting too bullish just yet as today had to occur based on oversold conditions. We'll learn much more quite shortly so stay tuned.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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