The Gilmo Report

February 11, 2018

February 10, 2018

I don’t think I need to point out what everyone already knows, which is that this past week was one of wild and wooly volatility with plenty of mystery and intrigue on the side. The implosion of the short-VIX funds to more threats of a government shutdown to the wild 1,000 Dow point intraday swings made for one of the more interesting weeks we’ve seen in a while. We might even consider that the first full week of February provided something of a respite from the boring, slow-and-steady market uptrend we saw in January.

On Thursday evening I blogged about a possible short-term bottoming scenario that might unfold on Friday, although admittedly I was looking for a gap-down move at the open to get there. After another 1,000-point dive in the Dow on Thursday, that seemed likely. However, the market opened to the upside on Friday and looked like it might gather some steam before the bottom dropped out suddenly around mid-morning.

At that point, the scenario I outlined on Thursday evening began to play out, and it was triggered by the S&P 500 Index as it undercut its October lows and its 200-dma on an intraday basis. The breach of the 200-dma is often seen as a very bearish development. But in my view, it merely set up the potential for a big undercut & rally move back up through the October lows and the 200-dma. That’s precisely what we saw as the indexes turned and rallied to close up strongly on the day on higher volume.

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