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Picking up dimes in front of bull dozers?


Good morning everyone. I am going to be in meetings all day, but want to throw out my thoughts this morning as we head into the two-day Fed meeting and the President's State of the Union Address tonight.

As you know i track the percentage of stocks in S&P 100 (OEX) that are oversold using 14-period stochastic, which has been a solid indicator throughout the whole bear market.

The current reading of oversold components in the OEX is 73%, suggesting a very high oversold level. The last time that occurred was on 9/23/02. After the initial reading of over 70%, we got a 2-day bounce, but still had about 7-9% before ultimate low in October. A reading over 70% was a signal that the market was approaching an important intermediate-term low, but had some more time and weakness to go after a very brief bounce.

Most will be talking oversold level of tape as time to buy, and ultimately they will be right, but my proprietary work suggest they may look smart for a couple days or even week, but in this bear market it also says to short any bounce (strictly from trading perspective) and look to be a larger buyer after another 2-3 weeks and/or 5% lower than current levels.

That amount of time and/or weakness would also allow the weekly readings to get back into oversold territory and allow for a transition from the reality trade (negative), back into the perception trade (positive).

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Have a great day and welcome back pal!
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