Oversold, Risks Still High
Those
of you who have been following my weekly TradingMarkets column, know
that I have been acutely concerned with the downside potential of this market.
Since May, I’ve talked repeatedly about large topping patterns in the
charts of the big caps, and how far these stocks could potentially fall.
Along the way,
however, I have also been keeping my guard up for contra-trend rallies and signs
of a cyclical low. I felt we could see
such a rally develop this week, and was therefore uncomfortable chasing the
short side coming into Monday. I was
obviously wrong. At this point, after
three days of the market selling off, I am even less inclined to chase the
market lower. If I miss being short in a
“crash,” then, so be it.Â
Yesterday, 24 of 25
ETFs/indexes I follow closed in the red, all except for the Gold
& Silver Index
(
$XAU |
Quote |
Chart |
News |
PowerRating). Also,
the CBOE Volatility Index
(
$VIX |
Quote |
Chart |
News |
PowerRating) closed
above 39. We must go back to Sept. 17,
2001, the day they re-opened the stock market after the WTC attack, to find VIX
readings this high. These factors,
combined with yesterday’s above-average volume (1.77 billion NYSE), and two
consecutive daily TRIN readings greater than 2.0, are — believe it or not —
good signs for the bulls. These
indications reflect a high level of anxiety and fear, which are exactly the
elements needed to form a bottom. See my June
20 column regarding the need for higher VIX readings.
So where does this
leave me? Bigger-picture, I feel we
could still go much lower, especially if the weekly charts of stock such as Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating), Pfizer
(
PFE |
Quote |
Chart |
News |
PowerRating) and Fannie
Mae
(
FNM |
Quote |
Chart |
News |
PowerRating) do what I think they are setting up to do.
I am particularly concerned with Microsoft’s chart, and the
implications for the Nasdaq index if MSFT breaks down from its weekly
consolidation pattern. However, as
readers of my
daily service know, I am still looking for trade setups in BOTH directions.
Stay tuned.