After perusing all the world is ending news stories and opinions this weekend following the S&P downgrade, I certainly get the feeling sentiment is very negative. If we look at the chart we see also via the blue line, that Sentiment objectively measured, has also gotten very negative. Typically in situations like this the market does bounce as you can see in the prior two instances it reached these levels. The news channels are all predicting a big down Monday, I am not so sure about that. We certainly could draft down, but if we do I think it will reverse and rally sharply. If you think about how often we have seen moves happen the opposite of what the news would seem to indicate, you should be wising up. What is obvious obviously isn't. That is a good mantra to use in trading. We have no idea to what degree this downgrade which everyone knew was coming, was already cooked into the price. If it does happen to accelerate things more sharply downward, it will be a good situation for very short term traders, or day traders, to get long.
You can see from the weekly chart there is a 3 week or so seasonal wiggle up that has happened on average here, so maybe that will setup the next short entry. I do believe we are going down quite a bit from here bigger picture, but not on a straight line. I still am of the view that a bounce is imminent.
Here is the VIX chart and you also can see more supporting evidence for a bounce in stock prices. When we have closed outside of these bands, you can see where the green line, which is the SP 500, has rallied. We have had several of them recently, so it is yet more evidence of how extremely oversold we are. This is a short term buy here not a sell. Again probabilities, not guarantees. If I had anything guaranteed to never be wrong you would never see it posted here, it would be far too valuable. It does not exist anyway.
Net net, look for a bounce in stock prices this week.
Here are a few other markets I am looking at.
COCOA, COTTON, COFFEE - BUYS
HOGS - SELL
I am also looking to buy Gold and Silver in the next couple of weeks assuming they setup up short term patterns for me.
Good Trading, and keep your wits about you, it could be another volatile week.