(Published at 8:00 AM PST / 11:00 AM EST to Paid Subscribers)
Sellers remain firmly in control this morning. The fact that we did not get a gap fill at the open was uberly negative as mentioned in the pre-market outlook. But when the crowd gets too negative, a relief rally likely is close at hand. At this writing, the 10-day Put/Call ratio is exceeding the Covid crash high:
The VIX volatility (fear) index is above the December 2021 high:
CNN’s diversified Fear/Greed Index is back to fear, just not extreme yet:
Money Managers have raised considerable cash – which often occurs as we approach a low:
So, should we buy the dip? When the correction carves this deep and goes beyond the typical A/B/C wave, you can expect a retest of any low about a week out. So there will be a low, likely a short-covering rally, and then a retest of the low. To stimulate your memory, we will then need follow-through in a rally to confirm that real buying is at hand, as opposed to short-covering.
We don’t have a low yet, and there is no guarantee that any such low will be successfully retested. Even when we see a tradable rally, we typically only recover about half of the entire decline before we take another leg down.
In other words, strap in because the character of the market has changed. There is a lot of money to be made, but patience will be the key.
A.F. Thornton