Why I View Weakness Resulting In An Oversold Condition To Be A Positive

It was holiday trading for sure as the SPX ($SPX.X | Quote | Chart | News | PowerRating) had only a 4 point daily range between 1126.20 - 1122.14, closing at 1124.39, +0.2%. The Dow ($INDU | Quote | Chart | News | PowerRating) went out at 10,082, +0.3%, Nasdaq ($COMPQ | Quote | Chart | News | PowerRating) at 1929, +0.5%, and the (QQQ | Quote | Chart | News | PowerRating) 35.75, +0.5%. The primary sectors were green, with the exception of the (OIH | Quote | Chart | News | PowerRating), -2.7%, and CYC, which was flat.

NYSE volume was just 940 million shares with the volume ratio neutral at 49 and breadth +221. No significant price and volume action stood out in the S&P 500 and NDX 100 screens from yesterday's trading, so it is all about today and any downside continuation into the key time zone this month. We are off to a good start this morning as I do this at 7:00 a.m. ET, with the S&P futures -7.80 and Nasdaq -16 with the media pushing the oil hype.

For Active Traders

If you trade the (SMH | Quote | Chart | News | PowerRating) HOLDRs, it wasn't a total shut out day. The SMH declined to a 30.08 intraday low, which was right on its daily chart rising-channel trendline from the 27.78 low. There was also a positive divergence in the 8,3,3 Slow Stochastic and the -1.0 volatility band was 30.02.

You had the necessary information to make a defined trade. The SMH ran +2.4% to a 30.80 intraday high and a 30.68 close from that 30.08 low. Good setup and result.

Today's Action

Because it was a non-travel-range day for the SPX, work off the levels from yesterday's commentary and know your volatility band levels for today should the early red futures hold. This will put you in a Trap Door situation.

Continued downside weakness resulting in a short-term oversold condition is a positive going into the key time zone and could be a floor for a good move up into year-end.

Have a good trading day,

Kevin Haggerty

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