This oversold bounce so far appears to be similar to the January oversold bounce that brought the S&P 500 (SPX) index up 6.1% (based on closing prices) in 5 trading sessions. Basically, everyone got excited because it was a good move higher from a very oversold near-term tape. Was the market a sale after the 5-day sprint higher looking back?
The answer was yes, but not initially. Eight sessions after that 5-day spike, the SPX was very close to the same price as the close on that fifth day. When the market moves from deeply oversold to overbought, it takes more time to turn than if it was a one-day wonder and traders should be patient as the indicators work their way toward overbought. No longer oversold doesn't mean "short," it simply means the reason for buying has been removed.
If the SPX were to close at 850 today, that would represent the 2nd day (Thursday was down fractionally from Wednesday's close and one could argue it should be included) and a gain of roughly 4% from the low close. That leaves about 3 days and 2% if the bounce does track like January's. Until the intermediate-term indicators get closer to the level that created a significant sustainable rally (more than 10%), I must go under that assumption.
If the market is able to create a meaningful low without reaching the extreme intermediate-term levels seen before, the implications would be good enough that "missing" the first few percent would not be the end of the world. Given the fundamental, valuation, technical and geo-political backdrop --- THAT would surprise me.
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