Indices attempt to recover after steep losses
Indices dropped sharply yesterday, so does this mean we are about to see further losses in coming weeks?
Is this the long-awaited turn lower? Maybe. It would be silly to go ‘all in’ on this move. We saw the Dow rally 9% in the first two weeks of June, and the three-day drop this week takes it back to roughly where it started the month. A similar picture prevails for other indices too. It is important to look at the context – markets are still highly volatile, and we have seen sharp pullbacks already in this move higher (although not as sharp as this week’s). Indeed, such two- or three-day drops have been enough to ‘reset’ the rally and allow it to move higher.
The VIX surged to its highest level since early May, but remains well below the peak seen in March. A reversal here would spell more upside for equities – selling the spikes in VIX has been the way to go since March, will this time be any different?
Breadth underwent a huge reversal yesterday, although it had been looking rather over-extended. It has rallied hard since April, with little in the way of downward movement since mid-May. Sharp moves higher for the index and for breadth indicators leaves the market vulnerable to sudden downward moves, just as we saw yesterday. It is important to note that NYAD remains above its 50-day SMA and we have yet to see a bearish crossover in MACD, which usually provides short-term ‘sell’ signals.
There was a small tick higher in the put/call ratio yesterday, although not a full-blown reversal. However, this reading has hit a rather extreme level, which if nothing else suggests a near-term pullback will continue from here.
Incredibly, the percentage of stocks above their 20-day SMA has plummeted to its lowest level in a month, and back to a level that may set up a much more interesting risk-reward dynamic for longs. Similarly, the 50-day reading has now dropped back from its elevated level, which helps to clear the air for another possible move higher.
One possible note of caution is sounded by the percentage of stocks at 20-day lows – this only moved slightly higher yesterday and is nowhere near the peak seen in early May when the index last had a real pullback. Perhaps a little more downside in the index will lift this towards ‘buying opportunity’ territory.
As might be expected, we saw an uptick in buying among clients, as is normal around pullbacks – if this then reverses lower it would provide a contrarian ‘buy’ signal.
Seize your opportunity
Deal on the world’s stock indices today.
- Trade on rising or falling markets
- Get one-point spreads on the FTSE 100
- Unrivalled 24-hour pricing
See opportunity on an index?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Try a risk-free trade
- See whether your hunch pays off
See opportunity on an index?
Don’t miss your chance – upgrade to a live account to take advantage.
- Get spreads from one point on the FTSE 100
- Trade more 24-hour indices than any other provider
- Analyse and deal seamlessly on smart, fast charts
See opportunity on an index?
Don’t miss your chance. Log in to take your position.
Related articles
Live prices on most popular markets
- Equities
- Indices
- Forex
- Commodities
Prices above are subject to our website terms and agreements. Prices are indicative only. All share prices are delayed by at least 15 minutes.
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
