Capitulation and a Bottom.
Updated
The indexes are entering a period of traditional seasonal weakness. The headlines will be filled with bearish news and stories of pending economic doom. Pay no attention to the talking heads. IMO The bottom is in and the lows will hold.
My favorite headlines are the ones talking about low volume, no capitulation, and the bottom hasn't happened yet. Well, the charts tell a different story. The first chart is a weekly chart of the S&P 500. The bear market sell off was 168 days long and dropped the index by 24%. The first clue that the bottom was in is where the index found support - right around the AVWAP off of the covid plunge. The next clue was the massive volume that took place on the final week of the sell off - everyone was running for the exits. The final clue was the formation of a hammer candle a few weeks later.
Lots of market prognosticators are questioning this bottom and claiming that market participants have yet to capitulate. The chart disagrees. Over 50% of the bear market losses happened in the final 9 days of the route. The intra-day YTD low saw volume that was 78% higher then the preceding 52 period average and the highest volume since the fall of 2020. All of the weak hands folded right here. If this isn't capitulation then what is? After the seasonal weakness passes anything sub 4000 on the index will be a distant memory. The AVWAP off of the prior ATH will provide resistance. Once 4220 is cleared and becomes support its going to be off to the races. The media will be filled with skeptics. Around this time you will notice that bad news will no longer move markets. The pundits will pivot and the headlines will be talking about a bottom that is 6 months plus old.
My favorite headlines are the ones talking about low volume, no capitulation, and the bottom hasn't happened yet. Well, the charts tell a different story. The first chart is a weekly chart of the S&P 500. The bear market sell off was 168 days long and dropped the index by 24%. The first clue that the bottom was in is where the index found support - right around the AVWAP off of the covid plunge. The next clue was the massive volume that took place on the final week of the sell off - everyone was running for the exits. The final clue was the formation of a hammer candle a few weeks later.
Lots of market prognosticators are questioning this bottom and claiming that market participants have yet to capitulate. The chart disagrees. Over 50% of the bear market losses happened in the final 9 days of the route. The intra-day YTD low saw volume that was 78% higher then the preceding 52 period average and the highest volume since the fall of 2020. All of the weak hands folded right here. If this isn't capitulation then what is? After the seasonal weakness passes anything sub 4000 on the index will be a distant memory. The AVWAP off of the prior ATH will provide resistance. Once 4220 is cleared and becomes support its going to be off to the races. The media will be filled with skeptics. Around this time you will notice that bad news will no longer move markets. The pundits will pivot and the headlines will be talking about a bottom that is 6 months plus old.
Note
Hammer candle on above average volume on Friday was followed by a bullish engulfing today. Positive divergence on the RSI confirms the strong reversal bars. Act accordingly.
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