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Buzz & Banter

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Last Thursday, I presented a chart of an indicator I keep which sums the last day's worth of readings in the NYSE TICK, taken every 1/2 hour. At the time, we were quite oversold, which suggested a bounce-back of one sort or another was likely to be seen soon. We got the bounce, the indicator became overbought by mid-day Monday (with lessening momentum as I discussed last week), and now we're back to oversold. In fact, the current reading is the 2nd-most oversold since the beginning of the year, with June 23rd being the most oversold (the low on March 12th is close behind that).

As you can see from the June 23rd reading, we got about a 10-point bounce in the S&P 500 before the indicator relieved its oversold reading and the market headed back down. This is a very short-term indicator and loses its effectiveness the longer out you go. The current extreme suggests that the risk/reward is beginning to skew to the upside again in the very short-term (like over the next day or two), but it doesn't mean we're headed to new highs. As I stated last week, I find that unlikely. If, on the other hand, the market continues its decline here, then we have a good sign that the larger trend is changing, and short-term oversold readings will not matter much as traders begin to shift to selling rallies instead of buying dips.

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No positions in stocks mentioned.

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