I made comment to a friend in the middle of last week that it seemed like the wheels were coming off the market. I said that because of the wild swings which were apparently tied to the currency market. Given the sharp reversals on Thursday and Friday I think at least one wheel has come off. This is a tricky juncture. I still want to be cautious about being too bearish in the short term given the oversold condition of the market. And it's not just short-term oversold, T2108 has dropped to 20.67, so it's just a hair away from its oversold level of 20. However, I'm seeing a ton of stocks that look like they still have air under them despite being oversold. The vast majority of those stocks look like they're failing at their 50-day moving averages. (Moving average breaks are why T2108 plunged from 66 last week.) Here are a couple of examples:
Most of the charts on my short candidate list look like Dick's Sporting Goods (DKS). DKS is threatening to break last weeks low and there's a decent amount of room to the next support level. These stocks are tempting to try despite their oversold nature. If the market starts to drop again I'll be looking to get in some of these. (I have a lot of retailers on the list, which makes sense given the consumer data on Friday)
Charts like TD Ameritrade Holding Corp (AMTD) are a little more rare. The bet here is for a failure of the recovery bounce to the 50-day moving average.
The Nasdaq and S&P 500 show potential for similar rejections from their 50-day moving averages. But this week could be even crazier than last week due to the Fed meeting, the payroll report, ISM and several other reports. Plus there's still the potential for an oversold bounce. This is a week to stay on your toes.
A little whipsaw on the intermediate trends over the last 3 sessions as the Nasdaq and S&P 500 thrash around their 50-day moving averages.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Up | Up |
| Intermediate | Down(-) | Down(-) | Down |
| Short-term | Down | Down | Down |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I'm simply using the indices' relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
I think another interesting difference during this sell-off is that we are wiping out post-earnings gains. Notice how the last two sell-offs, June/July and late-Sept, both preceded earnings. Actual earnings led the market higher. Looks like this time could finally be different.
Mike,
You've mentioned the T2108 on several occasions. What is the T2108? I'm not familiar with that term.
T2108 is a Worden/Telechart indicator that plots the percentage of stocks above their 40-day moving averages. It's used as an overbought/oversold oscillator. If you do a site search you'll see a lot of mentions of it.
Thanks