Is the Worst Already Behind Us?

S&P500 daily at end of day

End of Day Update:

Stocks bounced modestly following Friday’s bloodletting. We ended higher by 0.4% on less than average volume. The big headlines came from Apple’s product launch and the broad market followed AAPL’s lead higher, but it also peaked when investors were underwhelmed by the final version of the Apple Watch.

Today’s low-volume bounce was largely a placeholder for what comes next. We need to go back to last Friday’s price-action to get a feel for where the market stands. As we discussed last Thursday, the market needed a capitulation bottom before it could continue higher. Was Friday that day? We clearly smashed through 2,090 support in a very painful intraday selloff. It was also the first day in nearly a month with above average trading volume. While both of those traits are what we were looking for, was it enough?

Selloffs are rarely one day events and while the volume was elevated, it was well short of those that formed February’s capitulation bottom. Both of these factors suggest Monday’s bounce is not the all-clear bulls are hoping for. While sentiment came in quite a bit, one last plunge under the 50dma would do a far better job resetting sentiment and clearing the way for a move higher.

For this to be a “V” bottom, we need to rebound quickly and Tuesday is that day. If we don’t recover 2,090 tomorrow, expect this to correction to drag on a bit longer, either falling further, or at best trading sideways. There is no need to rush in and buy the dip. Let others gamble away their money trying to pick a bottom.

Jani