The Best Course Of Action For An Oversold Environment
On Monday, the Nasdaq gapped lower, but reversed quickly and
began to rally. However, it found its high in early trading and resumed its selloff. It then traded back and forth for the remainder of the day. This action has
it closing poorly.
The S&P put in a similar performance, but was hit much
harder on a relative basis. This action keeps it below the 870
“breakdown” level (see recent commentaries) and suggests the old lows
remain a likely target.
The VIX continues to stretch away from its moving average.
As mentioned on Friday, this action forms a repeat CVR-III (a pattern I
co-created with Connors).*
So what do we do? Nothing much has changed: The
selling remains broad based (read Friday’s commentary if you haven’t already
done so). Obviously, this action has the market severely oversold. And, as
you know, this creates a “damned if you do and damned if you don’t”
environment. If you try to short now, the market will bounce from oversold. If
you try to buy, oversold will become even more oversold. Therefore, the best
thing to do is to manage existing shorts and wait for the next bounce before
looking to establish new positions. Once again, for the aggressive, watch for
another bounce play (i.e. day trade) in the index shares should we gap lower on
Tuesday.
No setups tonight. Judging from the recent broad based
selling, we should see a plethora of setups on the next bounce.
Best of luck with your trading on Tuesday!
Dave Landry
P.S. Reminder: Protective stops on
every trade!
*Once again, email me if you need more
information on the VIX.
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