The market has held the August lows admirably, while commodities all broke down through August lows, and today hammered from incredible overnight sell-offs. This to us is a very positive first step — but continuation will be key. What will be necessary is a “feeling of safety” as traders who have had their limbs blown off by the sell-off start to come back into the market for “fear of missing the rally”. Once that happens we could get a monster squeeze.
Right now tech is a lightweight — as noted this weekend we wanted $AAPL to be hit before we saw signs of a bottom. We saw that today. The real soldiers in the trenches right now are the four horsemen of commodities, crude ($CL_F) , copper ($HG_F), silver ($SI_F) and gold ($GC_F). We’re keying off these for the immediate future.
The hammers in the four horsemen today are exceptional — but as we all know one day hammers don’t have much significance — it will be all about continuation. We think this week will be the most important week since this sell-off started this summer. The market held the range, the commodities bottomed — now if traders feel the fear of missing a rally and step up we could have a vicious bear market rally. If today was a one day wonder and market pulls back tomorrow then fear of losses will outweigh fear of missing profits and we will go lower. As said, this week is pivotal. Bring your A game to the table.