Market Update for Monday, October 23rd, 2023

Good evening, traders.

After closing below the 200-day SMA on Friday, the market gapped down, tried to summon a rally, but then closed the day below the 200-day SMA again. The green candle today is misleading, as—despite the big intraday rally—the market closed lower.

Two consecutive closes under the 200-day SMA is a bearish technical. And this morning’s gap down from Friday’s near-200-day close is also very bearish, as the market sometimes signals a break of major support with a gap. Bulls will need to produce a strong rally here—preferably with their own big gap up—to mitigate some of this damage.

The appetite for puts here—despite these bearish technicals—has gotten even worse:

That is the lowest equity-only put-to-call ratio close since July. This can be very contrarian. No one wants to bet on any further downside, and sometimes when that happens, it can mean we have a lot more downside to go. Since Tuesday, October 17th, the S&P 500 has now fallen 200 points and still no one wants to be a seller. No one has wanted to sell all the way down in fact. That tells me the drop is not being trusted by the majority, which inclines me to trust it (that’s the ugly contrarian bone in me).

If we are putting in a low, I will be impressed, shocked even.

If we keep going lower, I am still interested in the ideas posted in this weekend’s article.

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Needless to say, if the bulls pull a big rally, I will cover and reassess, but I haven’t seen the need to do that yet, and in fact, I even added to my position today.

I hope everyone has a fine rest of the evening and I look forward to seeing you tomorrow.