Monday opened lower as fear had once again spread. Interesting to note is that pretty much every asset started reversing on big support levels. The past week’s bearish price action has resulted in most bulls becoming bears it seems.
This is not a tactical fundamental bullish call, but we think the odds for a sharp reversal higher are setting up across equity indices. Expect to see credit and vols come in as well.
SPX is bad, but remember that bounces can be violent inside bear markets as well. We are bouncing right on the levels we saw back in early March. 2800 is the first real resistance to watch. Note the negative trend channel from recent highs.
Dax futures turned perfectly on the 200-day average today. This morning everybody explained how badly the DAX has performed lately etc. Why not a bounce to the upper part of the channel.
One of the biggest negatives over past weeks has been the bearish oil. We closed out bearish stance in oil on Friday. Note the sharp intra day reversal in oil, +3.7% from day lows.
Watch oil carefully as it has been a major input for the risk sentiment lately.
Given the fact vols have spiked so much, the risk averse bullish person can look at covered calls, benefitting from elevated vols.
Source, charts by Bloomberg