The main question here is whether or not we are oversold and hence ripe for a bounce.
Below are the 20DMF and OB/OS indicator since 2008. We can see that the MF reached -0.75% yesterday. That level (dotted Pink line) is not as shallow as past years' levels. However, that level has not been reached since February of 2016.
The OB/OS oversold level of -70 was also last reached on February 2016 (Japanese Nirp policy.)
Hence, in the context of the low volatility experienced in the past 18 months, the current pull-back is deep enough to trigger algo buying.
This is also what the Ratio of sectors on a buy wait mode indicator tends to show: The best buying opportunities in past years came when there were more than 50% of the sectors in such a mode (Yellow line). In the current environment, algos have jumped back into the markets on each shallow selling move (Green line).
What will happen this time? I do not know. However, the Leading NQ8 stocks still have some rooms to go before reaching interesting Active Boundaries level (Higher than 110).
This tends to tell us that this market has some more room to fall.
Conclusions:
I believe that the AB indicator for the NQ8 is what we need to follow. I plan to wait for this indicator to break above 110 and then fall back below it before buying the small caps (Yes, the small caps will react more strongly on a bounce.)
