Sellers stepped out of the way today. Although volume was generally low on the major indices, stocks managed large gains that made up for yesterday’s ugly close and much more. In fact, today was the kind of day I was anticipating for yesterday’s trading. Stocks in my listing of potential buy candidates for this oversold period enjoyed broad and substantial gains (update on performance statistics probably coming next week).
The S&P 500 stopped perfectly short of its 200-day moving average (DMA), and the index now sits near its lows on the first day of this oversold period. The stock market is not quite finished with the oversold period as T2108, the percentage of stocks trading above their 40-day moving averages (DMAs), stopped just short of the 20% oversold threshold.
I suspect that Friday will be a relatively quiet day ahead of the long weekend. However, when trading resumes on Tuesday in the U.S, we will have the potentially explosive combination of the beginning of the month and the beginning of the week. Such “bargain shopping” could propel the S&P 500 well above its 200DMA.
The continued decline in the volatility index (VIX) still adds further support for an on-going relief rally. Note well that the VIX is likely to bottom around the lows following May’s earlier relief rally as the 50 and 200DMA rise to meet the index. Volatility should remain elevated for quite some time.
*All charts created using TeleChart:
Be careful out there!
Full disclosure: long SSO and QQQQ calls