Bounce, but damage done

If you've been following our previous post with the SPY, we had mentioned how the VIX broke out. It was only a matter of time before it retested the multi-year resistance line:

Admittedly, we thought there would be some sort of consolidation/bounce faze during the initial break, before a further sell-off occurred. That didn't happen. It just goes to show, how unpredictable things can get once the VIX breaks containment.

VIX finally bounced off that resistance now though. A lot of damage was done though. Not only was the 200 dma completely blown through, but more importantly, the ever so talked about mega-phone pattern that has formed over the past two years was blown through to the downside as well. As was the markets third attempt now to break through and hold the upper side of this channel that has been present for the duration of this bull market:

So where do we go from here? 90% sure a bounce is now imminent. And if it's not, and the VIX breaks out even higher. WOW. The damage has been done none the less, because what could of just been an "overshoot" to below the mega phone and 200 dma, is now a substantial sell-off that will be over head reversal zones that coincide with fib retracements:

The .382 fib is going to be a very key zone. If there is a reversal with lower lows to follow, that appears to be the best spot for it to happen.

No earnings.....inverted yield curve....unemployment rate ticked up slightly....corona still hasn't even wreaked havoc on the U.S. yet. Everything is there to send this thing lower. There is still a massive gap above head though....They tend to fill. We'll wait and see what happens first around 308-309.

*As always, do your own analysis first! This is just something to reference back to later!*

Comment:

Got the bounce, as expected:

Now the questions becomes what's next? An emergency 50bp rate cut....a virus outbreak..remember when there was a trade war?

Couple things I'm looking at....first historically:

We talked about how rare what the VIX was doing from an RSI standpoint previously. Above are the only 3 times in the last 20 years, before this past week, that the vix went 5 consecutive days oversold from an RSI standpoint.

2/3's of those times, the bottom wasn't in after those 5 consecutive oversold days. Still, 2006, is probably the best reference here since the other two were during recessions.

Super small sample size none the less.
Last 5 emergency rate cuts:

Emergency rate cuts don't occur at bottoms....
But again, we're trying to determine if there will be a short term rally or one last dip lower before a rally resumes.

Both are clearly options....Right now the SPY is currently still sitting below a lot of overhead resistance:

The 9 dma, 200dma, and the mega-phone pattern. All seen an attempt to be regained yesterday, and failed.

--Until those are broke and held, I see the gray trendline being the interim "bottom" target:

My apologies if these charts look like a mess, but I like to try and see as many potential support/resistance zones as possible to avoid getting tunnel vision on one "likely" outcome.

Comment:

Comment:

Still would like to see the vix break above the trendline to confirm the move. Any rejection of the trend remains a long opportunity, but a very risky one, as of writing this, the SPY is at 293 in pre-market. Which essentially is no mans land.

280 has been a huge pivot over the past few years, and still remains the target here. People remain afraid to hold over the weekend....and Monday is when all the new wave of bad corona numbers come in.
---Down today, then a final gap down or flush out down to 280 Monday is what we'll be looking for...

---Just sharing thoughts as always, not investment recommendations---