Nearly all of our charts currently show deeply oversold conditions. While this is usually a good thing, in a market downturn, it isn't necessarily your friend. As you can guess, we believe that Wednesday's big decline was the beginning of something more serious. But the question is, "what about oversold conditions?"
One of the Bear Market Rules that we have is this:
Oversold conditions in a bear market -- "thin ice", no solid foundation for price bounces. Bounces can be bull traps.
Now for certain, we aren't in a bear market (yet), but we have experienced a serious decline that could lead to more. We are certainly susceptible to a bull trap. How oversold are our indicators? Here are the numbers as of the close on Thursday:
The Swenlin Trading Oscillators have reached deeply oversold territory. However, we wouldn't get overly excited by an upside reversal. Oscillators must oscillate and they want to be on the zero line. Notice that only 7% have price above their 20-day EMA and a mere 5% of stocks have rising momentum!
The ITBM and ITVM are also oversold. They haven't hit extremes and could accommodate more downside at this juncture. The big problem on this chart is the very few PMO BUY Signals left in the index.
Finally our Bias chart shows the oversold conditions of %Stocks > 20/50EMAs. %Stocks > 200EMA could definitely see more downside as could the Golden Cross and Silver Cross Indexes. Both of those indexes are below their signal line giving us a BEARISH Bias in the intermediate and long terms.
Conclusion: Oversold conditions are welcome in a bull market or bull market move. The market is still near all-time highs and mega-caps could continue to hold things together, but our thought is that these weak internals are coming home to roost. If not now, then January. Watch out for bull traps!
The DP Alert: Your First Stop to a Great Trade!
Before you trade any stock or ETF, you need to know the trend and condition of the market. The DP Alert gives you all you need to know with an executive summary of the market's current trend and condition. It not only covers the market! We look at Bitcoin, Yields, Bonds, Gold, the Dollar, Gold Miners and Crude Oil! Only $50/month! Or, use our free trial to try it out for two weeks using coupon code: DPTRIAL2. Click HERE to subscribe NOW!
Learn more about DecisionPoint.com:
Watch the latest episode of the DecisionPointTrading Room on DP's YouTube channel here!
Try us out for two weeks with a trial subscription!
Use coupon code: DPTRIAL2 Subscribe HERE!
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
(c) Copyright 2024 DecisionPoint.com
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.
Helpful DecisionPoint Links:
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)