Bottom Line: There were no real surprises today. Rallies were sold into and no one can fault the short for pressing his bet. And given all the uncertainty, there was no way the dip buyer would want to be long into the weekend.
Among the internals one thing stood out, OTC volume pushed above 4 billion for the second straight day. One would have expected yesterday’s volume surge given the circumstances, but not today’s. That the volume surged again, we take as a sign of significance – you see this level of volume at tops and bottoms.
It was only last week that we repeatedly mentioned complacency and the distribution phase at work. Today, we’re using the word capitulation. We view today’s volume surge as a further sign of short-term capitulation by the bulls. How quickly that translates into a trading bottom remains to be seen. The formation of a bottom will clearly be dependent on form (wave structure) and psychology (sentiment). Fat fingers or not, some things won’t change. Bottoms, like tops are a process that evolve.
We’re not going to guess and say, as many have, that this is the price where we think we will hold. Nor, will we try to suggest that the moving averages will prove to be an important level of support. To suggest as much is premature, unproductive, and a betrayal of the discipline and analysis that allowed us to predict this collapse. What we will offer is quality analysis of the components that will most likely influence the short-term outcome of the tape. Notably we will continue to focus on the commodities markets, specifically examining the various COT profiles. If there was ever a weekend to read our COT analysis, this is it.
There will be “tells,” bullish divergences that will surface to indicate that the all clear signal can be sounded. A good example of this was our take on Bonds, Crude and the Dollar shortly before yesterday’s meltdown. We were on record as saying that readers should be cautious because our analysis found that equities were at risk. Once again, we are on the lookout for signs, when we see them you’ll be the first to know.