In last weeks post, Destruction!!! What’s Next??? I noted that the V-bottoms we knew and have become accustomed to over the last two years might have been coming to an end. I also noted that there was strong evidence we would see a bounce, but that the bottom was likely not in. I clearly laid out evidence that the move last week could bear similarities to 2011. Now looking back that indeed was a very informative post as I detailed things to look for to determine how to play the move that we got. Here is just one excerpt from last weekend. 
With such uncertainty going into next week, the best traders can do is prepare for different scenarios and adjust their trading accordingly. Thursday’s bounce that continued into Friday came from very oversold measures more comparable to 2011 and 2012 versus the recent shallow pull-backs resulting in V-bottoms. At 9.8% we are currently still below the roughly 19% first low in 2011 (not ultimately the bottom of that correction which took place roughly 2 months later) and 11% corrections from the 2012 bottom. In terms of trading days, the 2011 correction (again using the first low) went on for 24 trading days, 2012 for 45 trading days and currently (using Wednesday as the low) accounts for 21 trading days. Based on internals (shown below) and the speed of this current correction, it does look more similar to 2011 than 2012’s. Furthermore, shown in the second chart during the 2011 correction price went much lower then the 200-day MA and continued to stay there. In 2012, price only very briefly slightly dipped below the 20- day MA before closing back above it without making a lower low.
And here is a separate look at each year on its own:
2011: 
2012: 
And now: 
Are you suggesting we are going to have the same correction as 2011 Sassy? No, not at all. In fact, I expect that the overall correction will be in-between the 2011 and 2012 corrections. Also, before I get criticized for only comparing this correction to those from 2011 and 2012 I want to note that I am using those years for several reasons.
- They are most prevalent (over 10%) corrections since the start of this five plus year bull market.
- They were both at the end of QE.
- They were both during times of increasing worry over European woes.
- They both took place under the first ever experimental central bank coordination efforts.
- They both took place after 2008 when the average mom and pop shifted their interest in investing in the market.
- They both took place in a time when more and more retail traders have access to information previously only available to larger institutions.
- They both took place in a much more social media focused finance industry (we do not yet truly know the implications, but I imagine the impact is/will be significant)
So how can they be useful Sassy? I can’t definitively tell you how each one will be useful, but I think to dismiss them is disadvantages. Had I not looked back at them when researching last weeks post here I would have tried to pre-maturely anticipate a V-bottom reversal rather then remaining patient saving my subscribers and I from the pain of being chopped up.
What’s next Sassy? The low that was put in at 1820 on Wednesday remains in question today. A convincing bounce that results in a confirmed bottom from extremely oversold conditions is usually accompanied by unambiguous strength in breadth and price, neither of which we got last week. Several factors that point to the likelihood of a revisit to Wednesday’s lows or even to a lower low include:
- the underperformance of the Russel on Friday after leading the bounce higher.
- the MACD continuing lower with the recent bounce.
- the length of time the market stayed in oversold conditions with most bounce attempts being sold into.
- the extreme move in the VIX that has remained elevated.
- the length of time SPX is reining below its 50 and 200 day moving average.
- despite short term put/call data being extremely bearish (contrarian bullish), intermediate term bearishness is still not at extreme levels.
Looking out to the next couple of weeks it would be fairly common to see this bounce continue to an area of resistance that then sends price to lower lows while breadth is not confirming of the lower price movement.
Levels to watch for resistance and subsequent short opportunities include 1906, 1950, and 1970 (in green). On the downside levels to look for support and long opportunities (possibly a bottom) include 1820, 1800, 1770 and 1740 (in blue). 
Good luck next week.
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R.I.P. To V-Bottoms – What’s Next?
In last weeks post, Destruction!!! What’s Next??? I noted that the V-bottoms we knew and have become accustomed to over the last two years might have been coming to an end. I also noted that there was strong evidence we would see a bounce, but that the bottom was likely not in. I clearly laid out evidence that the move last week could bear similarities to 2011. Now looking back that indeed was a very informative post as I detailed things to look for to determine how to play the move that we got. Here is just one excerpt from last weekend.
With such uncertainty going into next week, the best traders can do is prepare for different scenarios and adjust their trading accordingly. Thursday’s bounce that continued into Friday came from very oversold measures more comparable to 2011 and 2012 versus the recent shallow pull-backs resulting in V-bottoms. At 9.8% we are currently still below the roughly 19% first low in 2011 (not ultimately the bottom of that correction which took place roughly 2 months later) and 11% corrections from the 2012 bottom. In terms of trading days, the 2011 correction (again using the first low) went on for 24 trading days, 2012 for 45 trading days and currently (using Wednesday as the low) accounts for 21 trading days. Based on internals (shown below) and the speed of this current correction, it does look more similar to 2011 than 2012’s. Furthermore, shown in the second chart during the 2011 correction price went much lower then the 200-day MA and continued to stay there. In 2012, price only very briefly slightly dipped below the 20- day MA before closing back above it without making a lower low.
And here is a separate look at each year on its own:
2011:
2012:
And now: 
Are you suggesting we are going to have the same correction as 2011 Sassy? No, not at all. In fact, I expect that the overall correction will be in-between the 2011 and 2012 corrections. Also, before I get criticized for only comparing this correction to those from 2011 and 2012 I want to note that I am using those years for several reasons.
So how can they be useful Sassy? I can’t definitively tell you how each one will be useful, but I think to dismiss them is disadvantages. Had I not looked back at them when researching last weeks post here I would have tried to pre-maturely anticipate a V-bottom reversal rather then remaining patient saving my subscribers and I from the pain of being chopped up.
What’s next Sassy? The low that was put in at 1820 on Wednesday remains in question today. A convincing bounce that results in a confirmed bottom from extremely oversold conditions is usually accompanied by unambiguous strength in breadth and price, neither of which we got last week. Several factors that point to the likelihood of a revisit to Wednesday’s lows or even to a lower low include:
Levels to watch for resistance and subsequent short opportunities include 1906, 1950, and 1970 (in green). On the downside levels to look for support and long opportunities (possibly a bottom) include 1820, 1800, 1770 and 1740 (in blue).
Good luck next week.
For daily commentary and trade ideas inducing options check out a subscription.
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