Too many bears running amok?

The following screenprint does not tell the whole story of markets stuck in panic mood. At the height of selling frenzy at noon on Jan 15, I saw DJIA went down 530 points. It ONLY went down 390 points at the close. A reversal is afoot.

Mkt

All i want to say is we may have seen signs of a downside wash-out on Friday. Consider, for example, this 10-year chart of AAII bears-bulls (black line) and Rydex bear to bull fund flows (green line). Past spikes in either indicator to the current elevated levels have marked bottoms in the past.

 

As well, the CBOE equity only put/call ratio also spike to levels on Friday indicating panic selling. This is another sign of capitulation.

What path the US markets will take in the next few weeks?
If the S&P goes down to 1820, and hold, we will see a weak rebound to 1950.
Intermediate term (looking out 1-3 months), it may still go lower towards long-term strong support at 1620. For this 20% drop of S&P to materialize, we need to see 3 things to happen:
            1. the crude price  dropping to $20 USD;
            2. Quick 10-15% depreciation of Chinese RMB
            3.  the US Fed sticks to hiking short term interest rate higher by                    25 basis-point increment 3 more times this year.
What are the odds that 1.2.3 will happen? Your bet is as good as mine.
keep trading.
Albert

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