For all the hoopla surrounding Thursday's decline in the stock market, we didn't see much in the way of volatility in the dollar, bonds, gold or oil market. Sure, we saw declines across every asset. But considering that the Invesco QQQ Trust (QQQ) was down nearly 4% at its low and the SPDR S&P 500 ETF (SPY) lost almost 3% at one point, I would have expected more fireworks, especially in bond and dollar futures.
On Thursday, I wrote that while the bulls got their oversold bounce I needed to see a more meaningful low before trusting in a sustained bounce. And when I say sustained, I'm not suggesting the QQQ will bounce back to its mid-August high, but merely that a bounce of more than two or three days is probable.
We finally generated a tiny bit of bearish excess during Thursday's regular session. No, it wasn't meaningful by any strength; for that, I would have wanted to see the QQQ's low of 4% reverse to flat or even slightly green on the day, but a little excess is better than nothing at all.
As you can see on the chart above, yesterday's candlestick wick, which represents excess or price rejection, wasn't giant. Ordinarily I wouldn't pay much attention to it at all. However, given the oversold nature of this market, I'm looking for any indication that sellers are losing interest and buyers are ready to take control, even if for only a brief period.
The bottom line is that while I don't believe yesterday's excess represents a major, long-term turning point in the Nasdaq (or any major index ETF), I think it's sufficient for a one- to three-day bounce. But as I noted on Thursday, I'm willing to change my mind regarding the sustainability of a rally if we see strength above the 21-day exponential moving average.
As far as today's trading is concerned, I'm looking for generally choppy and challenging trading conditions on the QQQ as supply is thick into $273 and $275.50,and dip buyers are likely to be camped out against $270.50. While many of us would love to see some meaningful range extension, I expect range-bound and uncommitted action between $270 and $275.