\tSure enough, that’s what happened. The S&P rallied all the way back up to 2375 – a level that has been a magnet for stock prices all through 2017. Short sellers got crushed. And the television talking heads went from talking bearish about the stock market to talking bullish again.<\/p>\n
\tThen, on Thursday, the bears took back control. The S&P hit resistance at 2375 and tumbled lower.<\/p>\n
\tBy Friday, the S&P 500 closed at a lower low – which is a bearish indicator for the next several weeks. But – and this is the important thing for the start of this week – stocks are oversold enough right now that an oversold rally could start at any minute.<\/p>\n
\tConsider this…<\/p>\n
\tThe VIX closed above its upper Bollinger Band on Thursday – indicating an oversold market condition.<\/p>\n
\tIt closed back inside its BBs on Friday. That’s a VIX buy signal for the broad stock market.<\/p>\n
\tSo, at the very least, traders should be looking for a “one-day wonder rally” – similar to what we saw last Monday. That’s what we’ve had each time the VIX generated a buy signal over the past year. We should see something similar this time, as well.<\/p>\n
\tAlso…<\/p>\n
\tOn Friday the S&P 500 closed below its lower Bollinger Band, and it closed almost 40 points below its 9-day exponential moving average (EMA) line.<\/p>\n
\tUnderstand that whenever the S&P trades below its lower Bollinger Band, it almost always experiences a one- or two-day oversold bounce. And the S&P rarely trades more than 30 points below its 9-day EMA.<\/p>\n
\tI have seen strongly oversold markets run as far as 60 points below the 9-day EMA. But it’s rare.<\/p>\n
\tAnd during the “flash crash” a few years ago, the S&P 500 traded 100 points below its 9-day EMA.<\/p>\n
\tFor the most part, though, under normal conditions, a 30-point spread indicates an extreme condition.<\/p>\n
\tRight now, with the S&P 500 trading 40 points below the 9-day EMA, and with the VIX flashing a “buy” signal, I have to be looking to buy stocks into weakness this morning.<\/p>\n
\tI’m not looking for a long-term commitment. I’ll be happy to sell my positions in a week or two at a profit.<\/p>\n
\tFor this week… I suspect the bulls will have the momentum.<\/p>\n
\tBest regards and good trading,<\/p>\n
![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
<\/div>\n