Don here...
The S&P 500 closed down 111 points today in what I call a full court press. Sell side activity hit across the board with a high degree of correlation inside the index.
The dollar ripped higher. There was nowhere to hide.
But here is the part that should keep you up tonight. The S&P 500 is sitting right at its recent closing lows, and the VIX is only at 25. That is below its one standard deviation level of 28.
The market has been at these price levels before. The last time it was, volatility was significantly higher. This time, nobody cares.
That tells you capitulation has not arrived.
I walked through the full breakdown in tonight's video, including why "oversold" might not mean what you think it does right now.
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The S&P 500 is only 5% off its all time high. A correction does not begin until 10%. The real selling has not even started by historical standards.
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JP Morgan, Citigroup, and Morgan Stanley all closed positive on the day. In a true capitulation event, there is nowhere to run. Everything gets hit.
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Upside potential exists back to 6,800 or even 6,900 on a violent bounce. But downside convexity is 300 to 500 points lower because volatility has not spiked.
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The bond market is still selling off. Real panic drives capital from equities into bonds. That rotation has not happened yet.
Volatility needs to rip. The bond market needs to rally. People need to be screaming. None of that is happening.
We are sitting with our feet dangling over the edge of the abyss.
Click here to watch me break down the exact levels, the volatility signals, and what the next two days look like
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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