It's Scary That Traders Aren't More Scared (also SRS update)

As the Dow is making new lows below the January lows, it is tempting to start looking for a market bottom. I find one of the simplest and most reliable tools to gauge whether the market is bottoming is a moving average of the equity or total put/call ratio. I like to look at both 5 and 20 day averages and then look for crossovers of the averages after they get to historically extreme points. I also like to see the data in relation to standard deviation bands as that will help to locate relative extremes. In my estimation, we are a ways off before those get extreme enough to call a bottom.

Also, I am not an expert on the VIX but I am astounded that the Dow was able to forcefully break its January low, and the VIX is not even close to a relative extreme. I don't think there is enough fear in this measure to anticipate a bottom yet.

On another hand, it is helpful to look at volume on the indices and ETFs to help see the activity at recent market bottoms. One thing that struck me was that the volume on DXD which is the 2X inverse ETF of the Dow was very high.....higher than March, but not quite as high as January or last August. Volume will swell near market bottoms on an ETF like this because people are scared and are hedging other holdings or are trying to speculate on more downside. Based off the surge today, I think it is possible that we are very close to the completion of a first wave down in a much larger decline. So maybe we will get a couple weeks of relief, but I wouldn't bet on a multi month bounce from here.

The short-term model is oversold now, but I don't plan to suggest bullish plays when the market is in a clear down trend. I will be very selective on those.

As an aside move the stop on SRS up 90.81.

Pete