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Going Into Capitulation Mode

There are a lot of things to say about today's session.

First of all, as the S&P was testing its 200d MA for more than 2 hours, we decided to book half of our gains by reducing our short position by half at 1284.75 => 1334.07 - 1284.75 = 49.32 (gains).

Looking at our indicators, we can notice that the Sigma Trend Index (STI) declined from '-5' to '-42'.

The Trend Level (TL) moved from 3 (=neutral) to 1 (=sharply down) and the Swing Indicator (Swing) moved from 3 (=neutral) to 1 (=extremely negative). All these data gave us the negative momentum we were looking for after Thursday's session.

Sigma table

Looking at our short term sentiment index, we can notice that the panic level (blue line) is picking up, but we are still well below extreme level (above 40%):

Euphoria versus panic

Looking at our Sigma Whole Market Index (aggregate of 16 US indexes), we can notice that for the first time the market closed below its 200 day MA.

On top of that, the Bollinger bands are expanding, telling us we are entering a capitulation phase. The first support is around 1349 (~=5% below current price) which would be fully in line with an S&P around 1200.

Sigma Whole Market Index

Conclusion:

We remain confident that there is more downside to come because markets entered in capitulation mode and the short term panic level is not high enough for a bottom.

We are comfortable with our 1/2 short position. We have a stop buy order at 1302 (in case of a sharp bounce back).

Current position: 1/2 short at 1334.07

Have a nice week-end.

 

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