Monday Morning Observations

Just a few quick observations this morning. Although the market rose last week, several measures of breadth and volatility remain at extreme levels suggesting more of a bounce is likely. For instance, the VIX made a new intraday high on Thursday and a new closing high on Friday. The CBI remains elevated at 13. Worden Bros. T2114 also remains extremely elevated. T2114 measures the number of stocks trading at least 1 standard deviation below their 40-day moving average. T2114 closed at over 90% on Friday despite the fact that the market rose last week. The current 90% reading still exceeds all other periods other than the Crash of ’87.

The market is looking to gap up this morning. The SPY is up over 2% a little before the open. Traders may recall my post from last Monday that suggested 2% gaps tend to pull back at some point over the following few days. It happened twice last week. The market has been extremely choppy. If this pattern of choppiness is to be broken there will need to be a strong move right from the start which utilizes the extreme conditions mentioned above to mount a sizable rally.

As violently choppy as the market has been it is also possible that both the short-term bullish and short-term bearish indications are satisfied over the course of the week. In any case, it should be another interesting one.