Most of the moves have been in the overnight action. You can see this based on where the SPY (and ETF that tracks the SPX) opens every morning. In the first 4 days of trading, the overnight moves have combined for about 100 points drop in the SPX. which is the entire loss from last Friday's close. The media blames China... as most of the move comes when Asian markets open and trade (if even shortly, as China has been closed twice during the week).
Fascinatingly, during US trading hours the market traded positively on Monday and Tuesday, and flat on Wednesday and Thursday. So if we look at the US action, the markets are relatively bullish if viewed from the perspective of intraday trading. The US is basically, fading the overseas move.
So, when will this rout end? We need to look at how oversold the markets are. The VIX is spiking, but still not very high in absolute terms at around 25 today. The SKEW keeps printing numbers above 135, so its not confirming a bottom yet. What is giving a set up that could be interesting soon is the term structure of the volatility indexes. We have short term volatility now trading higher than volatility measures further out. This does not occur that often, as shown by the green arrows in the chart below. When volatility indexes revert back to a normal structure (longer term volatility trading higher than shorter term volatility), markets get bullish very fast. I will be trying to catch that move.
On the same chart, I have marked pink horizontal lines corresponding with the low levels of the volatility indexes. Since the September spike, volatility has remained high. Until we see the volatility break down below this new support area, a new high on the indexes will not come. Trading call verticals looks to be much easier in 2016.
There are two indicators that already show the market is in an very oversold state. The first is the number of stocks trading above their 20 day moving average (chart below). Again, this number is less than 20% of all stocks, which does not last long without the market bouncing higher for a few days.
As I write this the futures are spiking higher - up 1% in a flash move - probably China is doing some intervention finally to stop the bloodshed. Lets see if next week's options expiration's week turns out positive.
