After yesterday’s reversal and sharp decline, we could be in the stock market capitulation phase of this decline both from a price and sentiment perspective.
The S&P 500 Index is quickly approaching August/September lows in 1,867/1,872 region. And volume has been consistently heavy as bulls appear to be throwing in the towel – a likely sign that stock market capitulation may be here.
Daily momentum (14D RSI) is below 30 and oversold for the S&P 500.
Last week, I warned about the small caps and the price action on the Russell 2000. Overall sentiment wasn’t quite there at yesterday’s close for an intermediate term rally, so maybe we see sentiment get stretched enough to the bearish side by the end of the week. Something to watch for.
A slight undercut of the August low (1,867) would scare many, and could actually end up being a decent bottom from which an intermediate term rally begins. I will note that there is little support under the August low – so that would turn your run of the mill capitulation into CAPITULATION.
Even the October 2014 low at 1,820 is not great chart support as it was a “V” bottom with little price structure.
S&P 500 Daily Chart – Stock Market Capitulation Phase?
Weekly charts are obviously still bearish. Price has approached the first area of potential support from a trendline off the October 2014 lows. The weekly MACD (momentum) is still bearish, the 43W RSI is below 50, and the demarcation line between bull and major corrective/similar to bear markets. The 17-week EMA is below the 43-week EMA, a long-term warning.
S&P 500 Weekly Chart
Personally, I remain heavily tilted toward cash, but will start to nibble between 1,850 and 1,900 in anticipation of at least a counter trend rally against what appears to be the makings of a stock market capitulation phase.
Bear market rallies can be ferocious (assuming we are in a bear market). If we are not in a bear market, then things are quickly getting interesting below 1,900. I will also note that there is little price support or resistance between 1,870 and 2,000 on the S&P 500. I’ve talked about this vacuum before so if this thing turns, the move higher is likely to be very quick, just like the downside was.
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Thanks for reading and good luck out there.
Twitter: @MarkArbeter
The author does not have a position in any mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
