Monday saw the Dow Jones Industrial Average suffer its largest down day since before the Presidential Election. CNBC highlighted the 700 point drop because doing so sounds far scarier than saying the popular benchmark fell nearly 2%. They weren’t wrong, though. It was a far bigger down day than what recent market movement has trained traders to expect.
If you want some signs that relief is on its way, though, I have three. These are the types of things I look for that signal we saw capitulation. For the uninitiated, “capitulation” is what we call it when weak hands finally throw in the towel and puke up their holdings. It happens at market bottoms and usually presages a rebound.
The first sign that was Monday’s session might signal the worst is over (at least for this selloff) is the volume. Note how sharp the rise was in SPY, IWM, and QQQ. IWM traded over 58 million shares, notching its third-highest volume session of the year. Look at the other two days (March 4 thand 25 th) and see what happened afterward.
The second sign was the VIX spike. This is the fifth major surge of 2021. Every other one saw the market bounce within a day or two.
The third sign is what’s transpiring in the bond market. Bond prices went wild on Monday as investors came screaming into the perceived safety of government debt. TLT surged 2.19%, which is a massive move for the fund. At the same time, the ten-year yield (TNX) got obliterated. It closed down 9.15%.
Contrarians have to be loving what they saw today. Let’s see if bulls can capitalize on the washout.
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Originally published at https://tackletrading.com on July 20, 2021.