Finally, the Steer Rally is back again. Piggish shorts, eager to book a 325 point move in the Nasdaq, and Asshole Dip Buyers, sensing the extremely oversold market was ripe for a squeeze, brought forth the much-awaited bounce.

The charts, after 8 days of heavy selling, have a lot to say.

• There are gaps to fill. I expect the gaps in the Nasdaq and the SPY to fill during this bounce.
• Volume was relatively good on the Nasdaq and fairly unimpressive on the SPY.

• The indexes are exiting conditions that were more short-term oversold than anytime the previous year.

• MACD did not confirm the lower-low.

• The Nasdaq’s 50 day average will cross under the 200 day average this month.

• The SPY’s death cross shows no signs of coming undone.

Do not make the most grave mistake of getting long here and expecting to stay long more than a week. This is not THE bottom. The bears WILL sell this rally as soon it approaches overbought. I hope that the indexes get back near moving-average resistance (indicated by the Honey Hole) before reversing, but one can never be sure.

Some crucial points to ponder:

1. As the market was deathly oversold for 3 days, it is possible that the snapback rally will be violent to the upside. This will be normal. Do not mistake it as an “all clear” signal.

2. The MACD did not confirm the lower-low, which means the Steers still have some fight left in them. This too means any rally may appear to have strong legs.

3. The RSI(2) is already in the neutral zone after today’s bounce. The market may move to overbought very quickly.

4. As the indexes are trading beneath the 200 day average, some will say this means we are officially in a bear market. If the market returns to the 200 day average and cannot overtake it, then you will have confirmation of a bear market. Let me repeat myself: If the market cannot overtake the 200 day average, you are trading in a Bear Market. As you would not be overweight short in a Bull Market, similarly, you must not be overweight long in a Bear Market. Do not fight reality, as this will be a crucial realization, necessary for survival over the coming months.

Finally, with my money, I will keep my eyes peeled on my short watchlist while playing an oversold bounce or two.

 

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