Markets back to "Oversold"
There was no continuation of the bounce today. But markets are back to being oversold. That does not mean markets cannot go lower - just indicates that the risk reward is to the upside going forward at least for the next couple of days.
At the macro level there are lots of things happening such as the 10-year yield, Government shutdown, rates uncertainty, recession calls, energy prices, geopolitical tensions and I am sure I am missing many more.
However, at the end of the day, the sum of all greed and fear is demonstrated in how the markets price the instruments. So, for mere mortals like me, it is always best to only look at what the price is telling me.
What does oversold mean? It means extreme fear and caution. If we look at market gyrations as a pendulum (not suggesting they always behave like a pendulum) then oversold (extreme fear) is one end of the pendulum. The other end is overbought (extreme greed).
Oversold markets are when smart money moves in to buy the dips. There still is a cyclical fear of the typical month of October looming ahead of us. So, the buying may be gradual. But they will buy.
The S&P 500 is now down -7% from its peak in July. So, we have had a reasonable and orderly pullback so far. The VIX has risen to around 19 from a recent low of around 12-13 (which it touched 3 times before this recent upswing).
As I mentioned yesterday, there is a very recent gap above which may get filled in the next couple of days due to the oversold conditions. But the pundits are saying October will continue to be weak. I will be tracking the price trending and trading accordingly.