Why I Think the Market will Bounce Now

Technically, the market is oversold. What is interesting this time around is that I see parts of the NYSE bottoming earlier than others. Infact, on an intraday basis, the XLF bottomed yesterday afternoon just below $29.30 and retested that low shortly after open (low of $29.45). As of this writing, it is only down $0.12 for the day and the market seems fairly orderly.

In other places, however, areas that held up initially are now getting taken out and shot. Technology continues to struggle today, now down 7% in the last three days. The sectors that fall first usually come back first and I expect financials will lead us back and my eye is on the S&P 500.

Calling a bottom is nearly impossible, but here is my thinking about why I think we are close. The McClellan Oscillator is the one measure (above others) that I use to figure out when to deploy my spare cash during downturns. Anything below a ratio of zero is an initial sell signal until it gets really oversold and right now the oscillator showed a low of -64 and it is up a little today. It could still go lower, but it tells me that we are close. You will note that the August bottom read -77, which gives us all some perspective.



Secondly, I pay attention to the CBOE put/call ratio. Options players often reflect sediment and this ratio is a fairly reliable contrary indicator. When everyone is buying puts, I want to be buying calls. You can see from this chart what August looked like and notice that we haven't reached the point in the ratio that we did in August, but we are close.



Finally, I focus on the index chart. The SPX is trying to hold my Plan B line.

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=4&g=0&id=p14473809506&a=116688257

The only thing that I am concerned about with where we are in this sell off is that the fear doesn't yet seem to be there. Usually, when we see panic selling, the bottom is in. The selling is orderly still, meaning that we may have another day or two to go.

Regardless, I believe that the problems within the financial are much better known than they were in August, the Fed has lowered rates 75 basis points which will help growth, everybody still has jobs - meaning the consumer will come back, and the dollar only helps GDP in the short term.