Wednesday, November 2, 2016

Stock Market Update 11-2-16

US stock indexes made a "crack" yesterday with the SP500 and Dow30 breaking the recent October lows.  I had made a post recently which looked at past similar breaks to new lows after a rally attempt.  The take home from that was not a super high probability of a decline, but there was a downside skew which is pretty strong for about 2 weeks, and even longer.

So we are in a situation where stocks are likely shorter term "oversold" and likely to bounce as a small battle occurs around this minor support from the Sept and Oct lows.  But the intermediate term and upcoming events could still provide significant selling interest for several weeks.

I have run several scans looking at the current mix of technical indicators and sentiment, and some have showed a significant bullish skew, most notable for about a week.

I also ran a scan which looked at a combination of marked increase in volume, VIX, and total put/call ratio all on the same day.  And while it may seem like a big swell in these sentiment measures would create a nice bullish set up, the results actually showed a significant negative skew for a week or so.  Basically, it would be better for a bullish set up to see the market "slow down" rather than trying to catch the falling knife while it is still picking up speed.

So my personal interpretation and opinion of the most likely scenario is for a brief rally attempt beginning soon, but then likely resumed sell off and lower lows over the coming 2-5 weeks.

The FOMC meeting announcement is this afternoon, and so there is the possibility of a reactionary move in the markets this afternoon.  Given that stocks have sold off over the last week, I would expect that there may be some "buy the news" activity after the announcement.  But I would not be really surprised to see continued acceleration of the recent sell off either.  That would seem ideal to set up a probable bullish short term opportunity in the coming days.


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