Market Remains In A “Very Oversold” State

The major indexes continue to lag in an oversold state although support levels in all four remain firm. Typically when we see this type of price action the aforementioned benchmarks will experience a short-term (1-3 days) bounce. Also, on a historical basis, the upcoming 4th of July holiday favors the bulls. The one instance where the market moved lower ahead of the holiday market participants witnessed a substantial rally surrounding the holiday.

My guess is that we will see a short-term bounce over the coming days, but of course no one knows for certain. Many are calling for a capitulation or “puke effect” but I am not sold on the idea.

The two Extreme strategies (ETF and Sector) are still without a signal which has been a positive so far. Also, with the NASDAQ 100 (QQQQ) closing near the lows of the day we could see a gap lower tomorrow which would certainly trigger a signal in the Gap Fade strategy.

My preference would be to see the market gap lower tomorrow, the larger the better. Until then have great night and as always, happy trading!

Overbought/Oversold Levels for June 30th, 2008

ETF Extremes Options Strategy

* S&P 500 (SPY) - 20.6 (oversold)
* Dow Jones (DIA) - 7.2 (very oversold)
* Russell 2000 (IWM) - 20.2 (oversold)
* NASDAQ 100 (QQQQ) - 22.6 (oversold)

Sector ETF Extremes Options Strategy

* Biotech (IBB) - 46.7 (neutral)
* Consumer Discretionary (XLY) - 17.7 (oversold)
* Health Care (XLV) - 56.4 (neutral)
* Financial (XLF) - 13.3 (very oversold)
* Energy (XLE) - 62.1 (neutral)
* Industrial (XLI) - 21.3 (oversold)
* Materials (XLB) - 18.3 (very oversold)
* Real Estate (IYR) - 24.8 (oversold)
* Retail (RTH) - 26.0 (oversold)
* Utilities (XLU) - 51.5 (neutral)

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