You've heard me say this before: If trading were easy, I'd be on my yacht instead of writing these columns and in my spare time fixing up apartment buildings in the world's crappiest city, Las Vegas. Of course it's not easy. So here I am again.
What I will say about this selloff is that there is good news and bad news. The good news is that the market just hit new downside targets, and that may mark at least a short-term low. The bad news is that the case can be made (and it's a pretty good case) that the market has a date with lower levels, notably the .382 Fibonacci retracement level of the rally off the October lows -- and that's still a good distance ("a fer piece," as we say in Texas) below today's low.
Here is the story, and it's largely a story of the S&P 500. Note that on Jan. 31, the S&P closed at 1311.57. The next day, the market gapped up and that level hasn't been seen since. Until today, that is. This morning's low of 1311.01 was an undercut of that gap by about half a point, and the S&P has now popped back above the 1318 level. So filling of the gap from Feb. 1 is the good news.
Will the morning lows hold? Maybe. If not, there are gaps below beginning with the one from Jan. 19 at 1308. And then perhaps the most important one is the one from Jan. 17 at the 1289 level.
This brings us to the bad news. The .382 Fibonacci retracement of the rally off the October lows comes in at 1289.60. Odds are good that this level will be seen before this selloff is complete, and that's still a long way down from here.
Then there are the stories of the other indices. First the Russell 2000, which now has in its sights the gap from Jan. 10 at the 753.51 level. That's not too far below today's low of 759.18. So this index suggests a possible low just a little below current levels.
Also suggesting that a low should be forming near current levels are the indicators that are becoming quite oversold. The McClellan Oscillator is even more oversold as of Wednesday's close of -233. That's one of the most oversold readings of the past year. In my book, that is a good sign.
And, on the sentiment front, the fact that the Volatility Index is making higher multi-month highs is also a bullish development.
Accordingly, I am adding to my positions as promised. I'm buying mutual funds and SPDR S&P 500 (SPY) June calls, but still only up to a maximum of 65% invested (at Rydex, now Guggenheim Investments).