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Take a chill


Whoa Linda - just listen to us...we better start the day over! It struck me today as my car pool buddy and I were driving toward the City today just how the economic and geo-political landscape can affect psychology and ultimately consumer spending. We were both wound up as tight as a drum and chatted about what could go wrong in the world vs. what could go right. When that happens, all you can do is chuckle and start the day over. The way I figure it, I am on my fifth day today and it is only 6:45am. THAT can't be good for my spending patterns.

In an effort to start the day over again, I would like to turn back to yesterday (what makes you think I have issues). Before heading off to the cameras, I put out a note outlining how despite the near-term oversold condition, the intermediate-term indicators remain a good distance away from prior intermediate-term rally kickoff points.

NYSE New lows: 600-700 - currently 66
10-day NYSE TRIN: 1.60 or above - currently 1.51
NYSE 10-day net Breadth: -700 or worse - currently -488
Weekly SPX fast Stochastic: 10 or below - currently 26
Weekly SPX MACD: -55 or worse - currently -18
Weekly RSI: 25 or below - currently 42
% SPX below 200-day MA: -15% or worse - currently -7.7%
VIX Index: 50 or above - currently 35

The current reading on the percentage of stocks oversold in the S&P 100 (OEX) is 87%, which historically is very high. It is the highest reading since 82% last September 25th. Again, the market as measured by the S&P 500 (SPX) bounced for a couple of days back then, but did not reach a low until early October. The high reading of daily oversold suggests the market is heading toward another intermediate-term low, but that it makes sense to wait for the weekly indicators to agree before putting more money to work.

Exhibit 1 - The SPX looks oversold enough to rally --- but be careful because...

The Stochastic Oscillator compares where a security's price closed relative to its price range over a given time period. It is displayed as two lines. The main line is called SK Fast. The second, called SD Slow, is a moving average of the SK Fast. The reason that the lines are called fast and slow is because the SK line will always turn before the SD line, thus making it fast.

Exhibit 2 - The intermediate-term downtrend remains in place and the market is not yet oversold...

Exhibit 3 - ...and the MACD suggests more room to the downside...

The Moving Average Convergence Divergence indicator is calculated by subtracting a 12-period exponential moving average of a security's price from a 26-period exponential moving average of its price.

Exhibit 4 - does the RSI indicator.

The name relative strength is somewhat of a misnomer since the RSI does not compare the relative strength of two securities but rather the internal strength of a single security. A more appropriate name might be "Internal Strength Index".

Exhibit 5 - The market is not yet extended to the downside as it has been before.

Exhibit 6 - The VIX index has picked up, but not to levels that jumpstarted significant rallies

All definitions and graphs are courtesy of Baseline, Inc.
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Excitement may be a little premature (can I say that here?)
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