Three days of quick and heavy selling strike deep into the market’s heart. Vultures circle a bloodied and stumbling bull. But is it dead?
Our bias shifts down to Bear mode. It’s a reflex that comes as naturally as ducking for a brick tossed at your head. No strategic reason to be long with our core strategy.
However, selling extremes of this measure more than often preclude sharp reflex rallies. In other words, jump in an index if you can stomach the volatility. Tight stop below recent lows should cap the risk nicely. Be quick, be nimble.
Oil, and the United States Oil, USO, ETF looks good. General lack of demand for commodities has warned for months of potential economic weakness. What led us down could lead us back.
We’re also looking at relative strength winners to discern the strong from the weak. It’s too early in the week (or sell-off) to get a good handle here – though already we’re keeping an eye on the Home Construction Index, ITB, as a strong candidate. We liked what this was doing earlier in the year. Underlying trends sustain our initial observations.
There’s a lot to watch this week. Stay tuned!