The Oversold Bounce and Bear Market Rally Are Here

Folks, we simply could not make this stuff up, even if we tried.

As the government scrambles to pull off what should be the largest financial airlift in America's history, the S&P 500 gyrates wildly as it tags key technical support levels with uncanny precision. Earlier this week, I noted how perfectly the S&P 500 bounced off the October, 2005 climactic lows. At that time I predicted/guessed: "The next support is around 1140 formed by a sharp correction in April, 2005. We are barely 1% above that level now and hitting that level will probably come with the VIX hitting 40 or greater."

Sure enough, the very next day, the S&P 500 touched a low of 1133.50, and the VIX spiked to a high of 42, all on incredibly high volume. The VIX proceeded to slide rapidly from there and finished down on the day, 9 percentage points off the highs. We also saw the T2108, the percentage of stocks below their 40DMA, pop right back up above the magical 20% mark. (See TraderMike for charts of the day's action).

The combination of extreme trading volume, a VIX spike to 6-year highs and then its rapid collapse, and an immediate rejection of the 20% level for the T2108 have all generated the kind of bottom we want to see to kick off our Nth oversold bounce and bear market rally. Stocks have been violently transferred from weak hands to the strong hands that are likely to put up a vigorous defense of these support levels.

Disclosure: None

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[Dr. Duru]

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