As discussed last week, the market has been topping here with a three week test of the high failing two weeks ago. Then last Friday, we witnessed a THREE DAY test of the high that failed. The signal was a perfect success as the market opened on Monday down, continuing down throughout the week with a brief bounce on Thursday. It was a very sellable rally and I added to puts in anticipation of the three month test of the lows, expected this month.
As we can see in the following table, stocks across the globe were decimated.
US markets fared quite well actually as some countries were down up to 7%!
I am expecting further weakness as my monthly count shows the possibility of a three month test of the low at 191.
If we view a weekly chart with Bollinger Bands, bands that mark over bought and over sold levels, we can see that oversold levels would occur close to the previous lows.
Looking at the weekly line chart, it appears that volatility might in fact even decline.
With this in mind, I have been selling options at the marked high and low levels to generate income.
While there is lots of room for trading gains within the parameters seen on the previous two charts, my other indicators confirm that volatility, while it may seem extreme based on the current daily moves, is still declining. This is because the volatility levels caused by the big down move in August/September caused volatility levels to rocket. Since then, volatility has been muted.
If the next week's moves mirror anything similar to the Aug/Sep moves, then it's possible to see the market drop to the lows in the next couple of days as markets anticipate the Fed's rate hike decision. Interesting days ahead for sure.