Providing Update on the Brutal Sell-Off Today: we may see short-term relief rally, but pain is not yet over

20 Sep 2021 3:30 PM EDT

It's a tough day for the broader markets as concerns over a possible default from the Chinese developer Evergrande and the ripple effects that may have on China's economy, as well as the early innings of what is known to be a very seasonally weak period have investors selling stocks across the board with every sector trading lower. We've been right about this correction, as recently posted here last week and here this morning. 

We are in the camp that this weakness is likely to persist for the next handful of days and possibly even through the beginning of October due to seasonal factors. However, we think it is wrong to call the bull market over just yet, meaning slowly buying into the weakness will prove to be a great opportunity to capture low prices. Just have to be patient, be nimble and take one step at a time.

With the S&P 500 trading about 2.6% down today, we think we have seen enough pain in the markets to say that we may be seeing a relief buying phase maybe as early as tomorrow. We are now out of the lower band of the Bollinger Bands, suggesting a correction upward towards the bands is expected. Also, we're in oversold territory for the S&P based on the S&P Short Range Oscillator. After the close last Friday, the S&P Short Range Oscillator registered a -3.96% reading; a reading reaching -4% means the market is technically said to be oversold and a relief rally may be coming soon. For more about the Oscillator, please see here. 

Lastly, just to reiterate, it wouldn't surprise us to see any relief rally get sold given the challenges and uncertainties the market is currently facing. So in our opinions, relief rallies from now until mid October are to be sold (or go short).