Panic Getting Exhausted?

The last two weeks have been rough for equity and commodity longs. Fearing a return to recession, collapse of Europe, slowing growth in China, or who knows what, panic-type moves sent stocks and many commodities reeling, while driving Treasury bond yields to nonsensical levels. The panic may have finally exhausted itself Thursday, as the week’s almost uninterrupted equity slide finally stopped late morning, and began to reverse.

Looking at the daily and intraday candlestick charts for a number of key ETFs, we can see reversal signals:

Hammers on the oversold SPY, EFA, FXI and GSG

Upside down crosses on the overbought IEF and TLT

We also had a sharp, high volume selloff in gold and a pullback in the US Dollar index.

Now, whether this brings a stock market bounce is anyone’s guess. I’m going to say yes, we’ll have a better day on Friday, and it may even carry through the holiday and into next week. I am looking at this as an opportunity to close out long positions. There is simply too much risk with the SPX moving average “death cross” so close and the 1000 – 1008 level just below. If support comes in, we can always buy them back.

These pivotal levels have a sort of gravitational pull, and when the market gets close, it’s difficult to avoid getting sucked into them. As with all technical indicators, there is nothing magical about these levels. It’s simply that traders watch and act on them, so they have a character of self-fulfilling prophecy.

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