By Lawrence G. McMillan
Stocks remain under extreme pressure, but it finally looks like the oversold conditions are starting to have some effect. An oversold rally is now underway.
$SPX bounced off the support level at 1820. That level was also the low of both April and October 2014. In essence, nearly two years of gains — back to April 2014 — had been wiped out at Wednesday’s lows. By the time $SPX reached those levels, the oversold conditions were myriad, and a rally has ensued. We expect this rally to push $SPX up to at least its declining 20-day moving average, which is currently at 1980 and falling.
Equity-only put-call have issued fresh new buy signals within the last two days. This is the first intermediate-term indicator to turn bullish.
Market breadth has been terrible, and both breadth oscillators remain on sell signals, in deeply oversold territory.
Volatility has been — let’s say “interesting.” The trend of $VIX is higher, and that is intermediate-term bearish.
In summary, there are a lot of short-term, oversold indicators turning bullish right now. So a short-term rally seems likely. But the intermediate-term trend is bearish until proven otherwise.