Still Oversold

After another day of lackluster trading the market remains oversold and due for a bounce. The recent sharp sell-off in all of the major indices (especially the Nasdaq 100) has brought the market to levels not seen in quite some time. Breadth (the number of declining stocks compared to the number of advancing stocks) has been absolutely horrible and all of the major indices remain in an oversold condition. These two indicators coupled with a few others that we use are screaming that a bounce is in the cards over the coming days. That being said, I still would not be surprised to see another sharp sell-off, but it is my opinion that the move lower will not be sustained. Sell-off or not, the probability of a short to intermediate-term bounce looks promising and in a traders world when the probabilities are heavily weighted towards one direction that is the best information we can ask for. Of course, nothing is certain on Wall Street, but given the recent collapse in breadth and the oversold nature of the market I think the bulls might have something to cheer about over the coming days. Have a great night and trade smart!

RSI Wilder (5) for July 17, 2006

• SPY – 21.2 (oversold)
• DIA – 21.6 (oversold)
• QQQQ – 20.3 (oversold)
• IWM – 21.5 (oversold)

Nearing “Very Oversold”

The S&P 500 is once again nearing a “very oversold” condition. In the past this has been  a wonderful indicator that a short-term bounce was close. I would like to see one more down day for the S&P before taking a position. Monday could be the day given the geopolitical uncertainties in the market. Monday is also the tenth trading day of the month and in June that is the beginning of six days of abnormally weak returns. Not sure why, but the historical numbers don’t lie. As I always say, seasonality, in most cases, should not be the only reason to make a trade, but it is always important to know the seasonal picture especially in our current market. It happens to be a wonderful complement to any trading strategy.

Also, with all of the uncertainties in the market and option expiration next week we should certainly see a spike in volatility. This should present a few short-term opportunities, especially if all of the major indices reach a very oversold condition. We are already half way there with two out of the four currently reading very oversold. Be aware of these readings next week, they could be quite helpful. Although, as always, nothing is certain. Have a wonderful weekend!

RSI (5) Wilder for July 14, 2006

• SPY – 22.3 (oversold)
• DIA – 17.6 (very oversold)
• IWM – 22.0 (oversold)
• QQQQ – 16.3 (very oversold)

The Gap Closes

The 6/29 gap that occurred in all of the major indices closed today as a surge in geopolitical tensions across the globe coupled with a spike in energy prices caused the market to move sharply lower.  I stated yesterday that it looked like the gap would close today as the market indicators were pointing towards a potential move lower. Well, the markets did move lower today and the gap did close. Now what?

Well, the support levels we have mentioned over the past few days were breached today and now it looks like the S&P’s next support level is around 1240. There seems to be strong support here and given the oversold nature of the market we could get a decent bounce off of that support very soon. We are only a few points away from testing 1240 on the S&P so the next day or two should be rather interesting.

The market looks rather ugly right now, but our strategies don’t really care. In the face of a dismal market we were able to make a 3.6% profit today. This is much smaller than we are accustomed to, but given today’s market action we are not complaining. Futhermore, for the first time in several months our ETF Extremes strategy is getting closer to a signal. A continued move lower could trigger a signal as early as tomorrow so keep a close eye on this one. I know our participants have been eagerly awaiting a signal so lets hope it is a profitable one if it occurs. Certainly, the risk/reward looks very good at this point , but we have to be aware of the geopolitical tensions abroad before a final decision is made. Until tomorrow. Have a great night! 

RSI Wilder (5) for July 13, 2006

• SPY – 24.9 (neutral)
• DIA – 21.2 (neutral)
• QQQQ – 19.5 (very oversold)
• IWM – 25.0 (oversold)

Lack of Conviction

After a lack of conviction by the bulls today, the S&P is back to the lows of its recent trading range. After a poor attempt at a rally yesterday the bulls temporarily called it quits today. Could there be a another push lower tomorrow?

As I mentioned yesterday, the middle of June historically leans towards the bears. Furthermore, the gap that occurred on 6/29 is still out there and we all know how the markets like to gravitate towards a gap. However, there seems to be some strong support for DIA, SPY and IWM here so tomorrow’s move could prove to be very important for the short and intermediate term. If the market moves decisively lower I would expect to see the gaps close in DIA, SPY and IWM. Nothing is certain but the bears seem to have a slight advantage in the current market.

RSi Wilder (5) for July 12, 2006

• SPY – 41.6 (neutral)
• DIA – 37.5 (neutral)
• IWM – 37.2 (neutral)
• QQQQ – 26.2 (oversold) 

False Breakout???

Yesterday I mentioned if the major indices were able to hold (particularly QQQQ) then we could see a short-term move higher. This is exactly what happened today as QQQQ muddled around in a tight trading range before a late bounce off the June lows. However, in my opinion, there wasn’t enough conviction in the move to  be confident in a sustained move higher. There are still a few strong technical indicators out there siding with the Bears and with the most important benchmark moving ever closer to an overbought state the Bulls could have a difficult time moving the market substantially higher over the short-term.

Furthermore, the middle of June is historically, seasonally weak. I never try to put too much weight on seasonality and I almost never make a trade on seasonality alone. However, it is always helpful to know where the market is seasonally to further assist you with your trading decisions.

RSI (5) Wilder for July 11, 2006

• SPY - 63.2 (neutral)
• QQQQ - 39.1 (neutral) 
• DIA – 55.1 (neutral)
• IWM – 56.9 (neutral)

Oversold and Testing the June Lows

QQQQ is once again oversold and treading above the lows established in June.  Several of our technical indicators are signaling a short-term bounce in the tech-heavy index, but we would like to see a few more indicators jump on the bullish bandwagon before stepping in here. 

Also, the S&P, Dow, and Russell held up well today in the face of the QQQQ’s decline, but without QQQQ to lead the way, it will be hard for these three benchmarks to make any sustained move. 

The market continues to be stuck in a quagmire of uncertainties at the moment (what’s new), so waiting for a directional trend might be the way to go for any type of swing move. The last few times QQQQ reached these levels it continued to decline for several days so do not be surprised to see a move lower. On the other hand, if QQQQ is able to hold tomorrow this could be a sign that a short-term low is in place and we should expect to see a move higher which should ultimately bring the rest of the market with it. As always only time will tell.

RSI Wilder (5) for July 10, 2006

• SPY – 55.5 (neutral)
• DIA – 49.7 (neutral)
• QQQQ – 28.4 (oversold)
• IWM – 50.7 (neutral)

More Selling to Come?

The market vacillated around early on only to move sharply lower after lunch. QQQQ moved ever so closer to an oversold state so one more sharp move lower and the pacesetter for the major indices will be in a “very oversold” state. If this occurs I will certainly be jumping on the opportunity to place a trade. The other three indices are positioned in a neutral state and still have plenty of room to move lower although with QQQQ on the fringe of an oversold state the SPY, DIA, and IWM might not reach an oversold state before a short-term bounce occurs. Only time will tell.

Additionally, three out of the four major indices have yet to close the gap that occured on 6/29. Historically, gaps such as this one eventually close and with the recent bearish tone the chance of the recent gap closing over the next few weeks looks promising. As always, nothing is certain.

On another note, we will be sending out the information regarding our new strategies next week. We are extremely excited about them and we hope you will be as well. Please email us with any questions that you might have. Enjoy the weekend!

 RSI Wilder (5) for July 7, 2006

• SPY – 52.0 (neutral)
• DIA – 46.7 (neutral)
• QQQQ – 33.9 (neutral)
• IWM – 47.2 (neutral)

Which way will we go?

Tomorrow brings the June employment report and the market is situated for a decent move depending on how the market responds to the Labor Department’s release. The market attempted to rally today, however, with the jobs report due out most traders did not want to take a chance on which way the market will move. Much like Fed releases the initial move after the report is released is often a false one so be very careful taking a position especially if the market starts to move to the upside.

A strong move to the upside will once again push us into an overbought situation which usually limits the movement to the upside. This is the scenario I would prefer because as I mentioned yesterday, if we move into a “very overbought” situation the chances of a profitable short-term fade trade is increased. As always, it is never a guarantee, but the probablity of a successful trade increases dramatically.

Daliy Articles of Interest

• Cut Losses Short, Even at the Start of a Rally

• Stay Ahead of the Tax Curve

RSI Wilder (5) for July 6, 2006

• SPY – 66.6 (neutral)
• DIA – 67.1 (neutral)
• IWM – 62.7 (neutral)
• QQQQ – 42.7 (neutral)

Another Overbought Sell-off

As I indicated on Monday, thre out of te four major indices were in overbought to very overbought territory. IWM was the one index in a “very overbought” state and sold-off hard today. Unfortunately, most of the decline today occured overnight as the futures led to a substantially lower open. In the future, I plan on trading the any index that reaches a “very overbought” or “very oversold” state. In the past, this has worked wonderfully and has led to substantial profit opportunities. In some cases just a overbought/oversold state is good enough but once the indices reach an “very overbought/oversold” state the probability of a succesful trade increases dramatically. So in the future be aware of this as we will be making trades based on these situations. Of course, there will always be the occasional loser,  but as I have stated numerous times that is just part of the trading game.

Daily Articles of Interest

• Why Traders Lose Their Discipline

• Plan for All Seasons

• Work – A Basic Explanation

 RSI Wilder (5) for July 5, 2006

• SPY – 62.9 (neutral)
• DIA – 58.6 (neutral)
• IWM – 63.0 (neutral)
• QQQQ – 43.6 (neutral)

Overbought?

Three out of the four major indices are currently in an overbought state and one out of the three (IWM) has actually moved into “very overbought” territory. IWM (Russell 2000) has only been in a “very overbought” state three times over the past year and each tiome led to a short-term decline within a few days. I will be watching this extremely close after the holiday and hopefully a short-term is in the cards. One thing is for certain, the probablity of a succesful trade is in our favor. As we all know in trading nothing is guaranteed but when extreme situations like we are currently witnessing in the market occur, highly probable set-ups are the closest thing. Anyway, I hope all of you have a wonderful July 4th and the rest of the world, enjoy the final four of the World Cup, it stands to be a good one.

RSI Wilder (5) for July 3, 2006

• SPY – 76.4 (overbought)
• DIA – 74.0 (overbought)
• QQQQ – 66.3 (neutral)
• IWM – 80.0 (very overbought)

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