Here is what I see on the charts going forward for options trading investors for a few days.
Dollar Index – Four Hour Chart
On Monday, the U.S. Dollar was trading at a resistance level which in the past triggered strong moves lower. If we get a move lower on the dollar from here then I expect a strong recovery in the equities market and likely higher commodity prices also. If the US Dollar breaks out and rallies above this point then we could see a much further collapse in stocks and commodities. The falling dollar has also helped to boost crude oil prices the past couple months.
US Dollar Index Futures
SPY Daily Chart
The daily chart shows a large gap down putting the market in a short term oversold condition. Typically we see the market bounce back up or gap higher the following day. In some cases similar to Monday the market actually bottoms. So those long the SPDR S&P 500 ETF (NYSE: SPY) should have a good chance of recouping some of today’s decline by waiting for the knee-jerk reaction bounce in the next 24 — 48 hours.
SPDR S&P 500 ETF (NYSE: SPY)
Market Sentiment – Panic Selling At Extremes
Monday we saw panic selling at levels not seen since the market bottom in March. The green indicator spikes on the chart show very high levels of traders/investors dumping stocks in fear of a collapse. Monday’s negative headline news has sparked mass fear and when levels like this are reached you should think of holding long positions for another one to two sessions to see if we get that bounce or market bottom.
SPDR S&P 500 Index ETF (NYSE: SPY) 2
Monday Mass Selling Conclusion:
Monday’s sharp drop in equities could be an excellent low risk opportunity to add or take a long position here because most of the downside fear for the short term has been eliminated today.
That being said the trend appears to be down on the S&P 500 now so at this time I am looking to sell into a rally if we get one today or Wednesday.
