Historic Turnaround Tuesday Increases the Odds That the “Initial” Low has Been Established - Chaikin Analytics

Historic Turnaround Tuesday Increases the Odds That the “Initial” Low has Been Established

The SPDR S&P 500 ETF (SPY) has a Neutral + Chaikin Power Gauge ETF Rating but continues to outperform the broader IWV (Russell 3000 ETF). The fund remains oversold based on our indicator and Chaikin Money Flow is bearish. SPY is below the declining long-term trend line and has a bearish Power Bar Ratio.   

Yesterday’s gap higher increases the odds (but does not guarantee) that we have seen the initial low in the bear market. We remain of the view that there is likely to be an interim rally that could take the SPY as high as $280, but that the initial low will be tested and possibly breached. 

The iShares Russell 2000 ETF (IWM) has a Neutral Chaikin Power Gauge ETF rating and continues to underperform the SPY, though we have to be fair in pointing out that the relative weakness has diminished of late. Our OB / OS Indicator is leaving an oversold position and Chaikin Money Flow is bearish. IWM is below the declining long-term trend line and has a bearish Power Bar Ratio.

Sentiment Update

Sentiment remains more fearful than greedy as the market continues to sell off. The levels that we highlight below are extreme and part of the basing process will involve an alleviation of these extremes. You can read more about how I view sentiment in this post that I wrote for the Chaikin Blog.

The 13-day moving average of the CBOE Equity Put/Call Ratio is at 0.92, from 0.91 last week and has exceeded the levels that have tended to mark extreme pessimism over the past five years. While some would argue that this extreme level of fear is a sign that the market is going to turn higher, we prefer to wait for the indicator to begin to move lower as a sign that fear is abating in the market. If you look very closely, we can see the line beginning to turn down. Directional Change: Toward Fear

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