A More Constructive Open « Market Montage

With an hour or so to go before the open, futures are down about 0.6 to 0.7%.  Hence the title might seem strange, but when seeking an oversold bounce within a major downtrend one wants to see a down (preferably panicked) open with a strong close.  Too many times since 2009 during our selloffs there is a futures buyer who lifts the market overnight in thin trading.  This of course negates the chance of a big down open and hence the potential of a textbook reversal.  Things could change in the coming hour but as of now this is more constructive of an open for that sort of playbook to work.   Please be aware President Obama is going to speak at 1 PM about the now overbearing fiscal cliff so expect some volatility around that.

Long story short the market is in a world of hurt.  The NASDAQ was down 9.5% from peak in mid September coming into today and with this sort of open would reach a 10% type of pullback.  The S&P 500 has held in better at around a 6.5% loss (7% with this type of open).  Any bounce from here would not mean the end of the correction, simply a way to work off oversold conditions.  And we're now seeing those type of readings:

The S&P 500, as bad as the chart looks, is the best of the bunch so I won't bother posting an of the major indexes.  We can see this index is now below the lower Bollinger band and quickly approaching a 50% retrace (~1370) of the entire move from June.  The 50 week moving average (~1363) is also below.  So at this traders will seek a bounce relatively shortly – the question is how long it lasts in both time and magnitude, and most important where it begins.  But it won't be a reason to be giddy about the overall market structure, no matter how violent it is.

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Any securities mentioned on this page are not held by the author in his personal portfolio.