Market Benchmarks Short-term Oversold

All four of the major benchmarks I follow are now in an short-term oversold state. A few of the sectors I follow have also reached an oversold status: Consumer Discretionary (XLY), Health Care (XLV) and Financial (XLF).

My focus is squarely on the oversold status of the major benchmarks, but more specifically geared towards the smaller and tech heavy indices of the Russell 2000 (IWM)  and the Nasdaq 100 (QQQQ). Both have an RSI (2) of 5.0. A dip approaching 2 will certainly put both of them in a technically extreme state and the probability of a bounce increases dramatically at that point. Patience, patience, patience.

Furthermore, the large gap that occurred on 2/29 has yet to close. Typically when we see this type of price action in the market coupled with oversold/very oversold conditions a short-term reprieve is near (1-3 days).

Again, I should have the New PaperTrade Extremes portfolio available using ThinkorSwim’s PaperTrade very soon. This should be a helpful tool as I will start to integrate charts, etc. into the daily mix. (Insiders Only)

Unless some crazy news that sharply moves the markets overnight occurs we shouldn’t see a Gap Fade play tomorrow asthe underlying QQQQ closed in the middle of the trading range today.

It was certainly a successful first month for the Gap Fade strategy as the strategy reaped 16.4% in cumulative gains for month. Not too shabby.

Overbought/Oversold for March 3, 2008

Major Benchmarks

• Dow (DIA) - 29.8 (oversold)   
• S&P (SPY) - 27.3 (oversold)
• Russell 2000 (IWM) - 26.2 (oversold)
• Nasdaq 100 (QQQQ) - 22.5 (oversold) 

more overbought/oversold levels on additional sectors found in the Insider’s page