As we noted last night [6], yesterday's move in US equity markets showed signs of investor panic and capitulation.
[7]
BofAML points out that the inversion of the VIX to levels that have coincided with market lows for much of this year, the significant underperformance of recent outperformers (the NASDAQ Comp fell 2% and the Russell 2000 fell 1.72% vs an S&P500 decline of 1.23%), and pop in the ARMS Index all point to signs of capitulation. While this is encouraging from a technical perspective, as it says we are one step closer to completing the multi-week correction, they warn - it does not mean the correction is finished.
[8]
Price action indicates that we should see another push lower towards the Aug 27 low at 1627 (1618.25 in ESZ3), Potentially, the 200d (1599), before a more material base develops. This next leg lower should be a less dramatic and result in bullish momentum divergences that often accompany a base and turn higher. Back above 1662.75 in ESZ3 turns us from bearish neutral, while bulls need to overcome 1679.50/1687.15 (ESZ3 and CASH, respectively) to gain control.