The futures have been trading all over the place since they opened last evening at 6:00pm. When we went to bed last night, they have been down by more than 1%...then they flipped to the upside overnight and stood in positive territory by over 1% at one point...and now (as we write) they’re down almost 1% once again. The bond market is also seeing a big move…with the yield on the 10-yr note down to almost 1% (1.054% to be exact). We’d also note that gold is bouncing back and acting like a “flight to safety” asset…after it has worked-off the extreme technical readings it was showing a week ago.
As we highlighted over the weekend, the market has become very oversold on a short-term basis and thus it has become ripe for a sharp bounce. Remember, even the worst bear markets in history have seen many sharp bounces along the way, so even if you think this correction will turn into a bad bear market, the odds that it will move into bear market territory in a straight line are quite low.
If we have one concern about the near-term, its that a lot of people are looking for a short-term bounce, so maybe it will be a shorter one and/or a smaller one. However, the RSI chart on the S&P 500 index closed below 20 on Friday…and got as low as 16 (before the mysterious late-day rally on Friday). When you combine this with the other signs of capitulation we saw last week and highlighted in our weekend piece (very extreme levels of negative breadth, a huge jump in volume…etc.)…and we would still expect a good sized bounce in the market very soon.
Last Monday morning, we said that we believed investors ...