Despite the rally off the depth of Monday's lows, equities appear poised to struggle gaining upside in any convincing fashion. Damage has been done as we note below that RSI (Relative Strength Index) collapsed through the "bull trend" 30 level and tries to battle back to the more bullish 50 zone. Resistance appears firmly at the 2000 level of the S&P 500.
Known Sure Thing (KST) surely dipped below 0 confirming the trend shift. VIX's extreme reading was a give-away to load up on speculative longs at the height of last week's selloff, and remains rather elevated while the Put/Call ratio settles back a bit from its extreme reading. Note how these extreme readings in VIX and Put/Call precede sharp comebacks.
Market Breadth and momentum are rather dismal, as seen below. We are particularly leary of the lows in the summation index, which matched the lows from last October. Perhaps the bottoming out of the summation index is a potential sign of capitulation; we will see if it manages to change direction along with a turnaround in equities. Too soon to tell right now, however.
Our "economic proxy" charts are bearish. The ratio of corporate bonds to Treasuries remains below its 34-day moving average, despite a recent noteworthy bounce. This bears watching for a potential shift in equity trend, however past bounce-backs have failed at resistance.
Copper vs. Bonds remains at multi-year lows, while the stock/bond ratio and Small Cap vs. Large Cap ratios shift to downtrends. Discretionary vs. Staples has been see-sawing recently, the relationship remaining in a trading range.
The weight of the evidence suggests caution; no clear buying opportunity has surfaced. For opportunistic traders, as well as for long-term investors, going long at future market extremes (such as VIX shooting upward toward 40) may be a prudent move. Decent-yielding blue chips may be interesting at these levels for conservative long-term plays.
Otherwise, wait out this turbulence.