Friday showed some promise of a short term floor but things are still precarious. There are many possibilities long and short and many present a lot of risk.
1. VIX/ VXN/ VXO etc all printed reversal candles that penetrated the upper Bollinger. Unless we are heading to a massively oversold event like 2008, 2011
2. Small caps printed a hollow reversal candle and exhibited suprising strength relative to the other indexes.
3. Treasury yields may have set a short term floor
4. SPX maintained (barely) a long term trendline
5. SPY strong accumulation on Friday http://online.wsj.com/mdc/public/page/2_3022-mfgppl-moneyflow.html
1. Oil continues to crash
2. VIX is not elevated
3. The intraday range isn't increasing more which is a problem as volume is ramping up. To see a typical capitulation, you would like to see more intraday range and panic. The lack thereof could indicate the market could continue to dribble lower.
Potential scenarios-short term
Option 1. 50% We bounce from here starting Tues/ Weds and establish a short term bottom, maybe for a few weeks, maybe a couple months. We could bounce and then fall like Friday but the action would be a carving out a low that would be established this week. The action could be extremely choppy and difficult to swing trade. Afterwards, a retest of lows which would probably be broken.
Option 2. 30% We break through support and continue dribbling down on steadily increasing volume to potentially seek out the 1700's in SPX. Given that there is not enough capitulative fear (although fear is elevated) there isn't a sense of exhaustion.
Option 3. 20% We break through support then bull step in triggering a massive short squeeze. This could be the max pain scenario as many bulls would capitulate and bears would be blown out of the water.
Odds are not great in either direction although I did take on a small IWM long at close as IWM was showing good relative strength and a very promising hollow reversal candle sitting on the lower BB.
SPX barely held to close right at trendline support. The question is whether this is more like event 1 where we ground lower to move back up or event 2 where the churn finally gave way. It isn't clear.