Saturday, August 14, 2010

Are the markets oversold now?

After four consecutive down days, it's time to turn to our trusty old McClellan Oscillator to find out if the markets are oversold yet. Getting right to it, here are the two year charts for NYSE and NASDAQ McClellan Oscillators to begin with.























As we can see, both the oscillators still haven't quite reached the oversold levels but the NASDAQ is pretty much there. Another down day and it would be well into oversold territory. Another thing to consider here would be how rapid this fall has been.

Now let's move on to the Advance-Decline volume charts for NYSE and NASDAQ respectively. 























Aha! What do we have here here? The advance-decline volume is showing positive divergence with the advance volume being greater than the decline volume while the market went down. A sign of things to come?

Let's move on to the Advance-Decline issue charts now.























Interesting indeed! Both these charts are also exhibiting positive divergences with respect to the overall markets.

So, what are all these charts telling us? The markets are approaching oversold territory and while oversold can very easily become "more oversold", the odds of a short term bounce are favorable here. It would not be a smart move to initiate new short positions here and taking some profits off the table if you were short this entire time might not be a bad idea.

I will be back with a watchlist of both long and short picks sometime during the weekend. Make it a great weekend!

7 comments:

The Average Jay said...

I think we still have a long way to go down before it becomes oversold.

Jay

Maltosas said...

They might be oversold at the moment, but in my opinion the directions for most markets are down. Thanks for your insights.

Bill said...

I have to agree with the previous two comments, i just don't see a catalyst for upward movement here, the best case for the bulls would be if their is little or no change for several days before a nice rebound but it seems more likely that there will be maybe one good day in the next several and then more severe downward pressure. I originally thought/posted august might be a good month for the market since it usually averages %1.2 gain for the month one of the highest, but it looks like july stole augusts thunder and i think there are still too many optimist in this mudslide. Look for thursday to be a catalyst for this market as jobless claims and PHIL Fed data will be released and the market will be itching for some direction after last weeks shellacking.

positiontrader said...

Thanks for the comments guys! What I am expecting is a short term bounce here, which will probably present us with a nice shorting opportunity. And the oversold condition is based totally on the technical indicators, not on any undervalued/overvalued analysis. That's why instead of just short or long picks for the coming week, I have given both short and long setups in the watchlist for the coming week. One can either play this bounce and/or wait for an opportunity for shorts to be set up. Just that I wont recommend opening any new short positions here right now. The reward/risk ratio is not favorable for that over here in my opinion.

Sam said...

The one thing we have to keep in mind with any of the up volume/ down volume indicators is the increasing appearance of inverse ETF's in the actives -- which end up counting as 'up volume' even though they are definitely 'down stocks' as it were...

Anonymous said...

There is still too many unemployed shareholders with idle IRA and Keogh accounts not inflowing at all.

Voltripas said...

There is definitely no way to go upside. There might be some space for upside but not much.