Markets are in total disarray. I traded through the Crash of '87, and through the Financial Crisis of 2008, and this is worse. On Wednesday night, March 11th, I was asked "Do you think we're going to crash?" My reply was, "I think we already have."
Extreme oversold and volatile conditions exist, as do a few buy signals. An oversold rally -- and I am speaking about one that lasts more than a day, which is all we've had so far -- generally reaches and slightly overshoots the declining 20-day moving average. That could mean a rally as far as 3000, closing the gaps on the chart.
Equity-only put-call ratios remain on sell signals. They won't generate buy signals until they roll over and begin to trend lower, and since they are 21-day moving averages, that's not going to happen anytime soon.
Market breadth has been the worst in history. The "stocks only" breadth oscillator is at the lowest level in its history, at -1464.
Volatility has gone crazy. $VIX traded at 77.57 on March 12th, the highest level since the financial crisis, when $VIX spiked up towards 90 and was in the 80's on several days. $VIX didn't exist during the Crash of '87, but when its formula was invented in 1993, the CBOE back-tested the data for the Crash, and they estimate that it would have reached 150 at that time and remained above 100 for the next six trading days. Even if the market rallies, $VIX is likely to remain in the 40's and 50's for a while, as is its usual wont in the aftermath of devastating market declines.
The trend of $VIX remains higher. The trend change was registered in a very timely manner on February 20th, right before all of this began. The circled area on the lower right of the $VIX chart shows when this began.
In summary, the major trend is down. Oversold conditions are at record levels, though, and so a considerable rally could unfold. But I would expect a retest of the lows after that rally fades. The bulls are used to "V" bottoms for the last 7 or 8 years, but that may be changing finally. Wait for confirmed sell signals, and even then don't chase rallies.
This Market Commentary is an abbreviated version of the commentary featured in The Option Strategist Newsletter.