There was a flurry of bottom extensions in US equity indices yesterday. Here are three examples, from the NYSE composite, S&P500 futures and an oil and gas index but there were more; all three of the main futures contracts, the Russell 1000, S&P 100 and the sector indices for media, banking and asset managers.
This argues for a pause or rebound in the drop from hereabouts. The outlook is for further weakness eventually because of the longer-term bear signals reported here in the October 12th edition but bear markets are notoriously difficult to trade and rallies can be brutal. We would take some shorts off on any weakness today but are reluctant to advise any purchases to go long. The exception might be to do a bit of 'bargain hunting' in sectors or individual; equities that have been hit hard in the last few weeks, such as Oil and Gas.
We first warned about a potentially bearish feedback loop in energy prices last year, most recently in the October 24 2013 edition. Prices have slumped in recent weeks and now that sector has extended and so have WTI crude oil prices - only at a daily scale so far but this is the first extension in US crude prices. Bearish sentiment is high, so this sector is worth a look to pick up some equities and so is the crude price - buy some for a 'trade'.