Special Bulletin: March 2, 2020 (10:30am update)

Watching For An Oversold Bounce

With the stock market now in a correction, does the Fed have a vaccine? Maybe. At least the footprints of money may think so. And as a result, we think a bounce is eminent.

Our Current Market Outlook remains “Market in a Correction” with a “red” light. Our Core Four has improved with a move in the investor sentiment to green (see top of post and read on).

There was a silver lining in the technical action in Fridays stock market. On Feb 25th we wrote, “Unfortunately, the Put/Call ratio is not yet showing the typical readings associated with a near-term bottom, which means there may still be lower prices ahead.” Lower prices were indeed ahead, and dramatically so. However, the P/C ratio did finally speak.

On Friday, the P/C ratio registered a 2nd consecutive day of extreme readings creating the opportunity for a oversold bounce. Historically, a meaningful bounce happens within 1- 4 days of that event. We are seeing the possible start of that this morning.

Additionally, today (Monday) is the first trading day of the new month, which normally features a positive bias due to “first day of the month inflows” from 401k & other retirement plans.

In case you were wondering, the stock market actually experienced two minor bounces last week. The first happened Tuesday morning, but it quickly faded as it was too soon after the “negative double cross” to matter. The second happened in the last 15 minutes of trade on Friday. That proved to be very telling.

The stock markets long-term uptrend is still under assault. The technical damage sustained last week in the three major indexes will take time to repair. An attempt at a new rally may develop this week. But understand if one does, it will need to happen over several days and must reveal specific technical action before it will be considered a new confirmed rally.

What can investors do now? Expect an oversold rally (bounce) this week. Study the quality of the internals during that bounce to discern the footprints of big money as a clue to the markets longer term outcome. Watch for a surprise move by the Fed (a positive catalyst), or an announcement that the coronavirus is now spreading across North America (a negative catalyst), or other similar dramatic news to create the next powerful move.

Have a Triumphant day! ®