Back then, stocks hit extreme oversold levels, bounced enough to relieve that condition, and then dropped to a lower low. We may see something like that happen this time as well. A couple of technical indicators are pointing that way. Take a look at the McClellan Oscillator – a measure of short-term overbought and oversold conditions.
You can see the same condition in early June, when the VIX closed above its upper Bollinger Band and then reversed. That reversal kicked off a bounce in the broad stock market. When the bounce ended, the S&P 500 dropped to a lower low, and the VIX climbed to a higher high.
Right now, traders should be watching for a bounce. Look for the S&P 500 to rally toward the 1,680 level and for the VIX to reverse lower and test its middle Bollinger Band (just like it did in June) around 13.25. That should be enough to alleviate the current oversold condition and set the market up for a more significant decline.