There's still lower to go. How soon? I don't know any more than yesterday. The worst might not come until next week.
The likelihood the S&P 100 will fall still lower is what RSI indicates. Vertical red bars mark RSI bottoms ... horizontal red bars, RSI divergences as the S&P 100 moved lower ... area between blue bars marks S&P 100 bottoms (with coinciding RSI divergences).
Immediately after bottoming (at the first set of blue bars), the S&P 100 popped higher ... only to turn still lower. Now, move forward to the second set of blue bars. The trend is your friend.
Because last Friday's (4.11.08) RSI bottomed lower than the last Tuesday (4.8.08), chances are the S&P 100 will fall below lows set yesterday and today. I mentioned this yesterday (calling it "confirmation suggesting the stock market has further to decline"). So, that is why I present a "like from like" view through the mark-up added to the above chart. Today's trading more or less completes the similarity whose outcome suggests the S&P 100 will move still lower.
But how much higher, first?
The picture I have drawn suggests tomorrow (Wednesday, 4.16.08) might begin just like last Thursday (4.10.08), moving higher before topping and turning lower, blah, blah, blah.
But wait! Check out today's gap open higher and performance the remainder of the day.
Oh my. Those who bolted the market out of the gate did not sustain the charge. The gap filled in quite immediately ... then sellers had enough and said, "Let's see what buying conviction gapped this market higher at the open" ... backed off and allowed the market to inch its way higher the rest of the day ... yet the S&P 100 never exceeded its peak set at the open ... and RSI diverged into the close. Hmmm. This might not be good.
Volume remains sleepy. Diminished demand and complacency still suggest the path of least resistance is lower.
April OEX open interest at the 620 and 625 strikes is well-balanced between calls and puts. (The S&P 100 closed at 614.95 today.) 610 Put open interest is 3x call open interest. Add in the 605 strike and put open interest is nearly 5x call open interest. So, there's a floor under the S&P 100, or so the April OEX open interest picture seems to suggest. (A lot can change in a couple days as we move toward Friday's expiration.)
To summarize, then, I'll reiterate my conclusion yesterday. "[L]ater this week might begin an accelerated, climactic decline briefly taking out the intra-day low registered on March 17th."
Methinks, however, the bulk of any climactic move lower probably is more likely to unfold next week...
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.
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