Despite Legitimate Concerns, Silver Linings are Developing Array ( [cookie] => 88f86a-bc2148-6126f9-f188f7-b09cf2 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 0 [subscriber] => 1 [role] => fsi_community [visitor_id] => 556868 [reason] => [method] => ) 1
Investors are understandably worried that equities markets have peaked, and a more serious, prolonged correction is underway. After all, election uncertainties aggravated by rapidly rising COVID-19 cases, a lack of headway regarding federal stimulus and large-cap technology stocks stumbling during this earnings season are just a few issues unnerving investors’ risk appetite. For those that follow technical analysis, the lower S&P 500 high in October versus the September high followed by the break below the 50-day moving average are additional reasons some investors are justifiably nervous.
However, encouraging silver linings are developing - While all of the above are legitimate concerns not to be lightly dismissed, there are a number of technical events I view as encouraging silver linings beginning to develop technically.
First, daily momentum indicators, tracking 2-4 week market swings, are becoming oversold suggesting a tactical low is likely to develop within the coming week as the S&P retests support at the September 24 lows near 3209. My expectation is that this indicator will start to bottom within the coming week setting the stage for another upside rally into Thanksgiving and early December. What levels do I view as important to hold? I view range between the September 24 lows at 3109 and the 200-dma at 3166 to be the key support band that needs to hold in the coming week for my optimistic thesis to remain intact.
Secondly, while the equity markets have been probing new lows into Friday, the VIX volatility index is stalling at the highs of the past three days. Granted it is very early to state conclusively volatility has peaked but the lack of upside follow through is the type of divergence traders would be looking for as early evidence that the VIX is peaking after its recent surge.
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