The correction over the past few days has been accompanied by more negative TICK readings than we've seen in weeks. I keep several indicators which track these TICK readings in various ways, one of which is presented below for the NYSE and one for the Nasdaq.
The frame of reference for both indicators is approximately three days, which matches the short-term cycles equity indices often follow. Between August 19th-21st, both indicators became quite extended, telling us that the momentum we had seen had likely run its course, at least in the short-term. The downtrend since then, even with yesterday's afternoon reversal, has not only relieved that extended condition, but left the indicators towards the lower end of neutral, particularly on the Nasdaq.
Historically for the NYSE, a reading under +2000 could be considered oversold, and under -3400 would be a panic-type situation in which it would be highly likely to see some sort of snapback (note the two instances in July that both lead to tradable short-term lows). We're at +4400 now, which is where we were at the market low in mid-May, but not quite where I would consider the market overdone on the downside.
For the Nasdaq, an indicator reading under -6400 would be oversold and under -11000 would be a panic-type condition. Right now we're at -4400 which is also not quite what I would consider oversold, though it is the type of reading we saw at each of the other short-term lows since June.
The reversal yesterday put a bump in the road to these indicators giving us solidly oversold readings. While they are currently in a general area where some good short-term rallies have begun, they have not quite reached a point that would suggest the selling has been exhaustive. This has me neutral at the moment, but at least willing to look for some short-term long-side opportunities should the buyers try to push a slightly oversold market during a low-volume week.
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