Major Indices are Oversold, So a Bounce is Possible

Here are the major indices. You can see that the Dow and S&P are hugging the bottom of their channels, and I think this could be a logical place for a bounce, at least for the Dow. I am not saying it is a given that we bounce, but it wouldn't surprise me. The Fed will probably play a role in the action the rest of the week, although I have not read one opinion that does not say the Fed will just sit tight for now. I don't know what Wall Street will take from this - perhaps the wording will affect trading. Does that change my longer-term outlook? Not really. If the VIX was a lot higher right here and we were very oversold, then I might think differently, but as of now, any bounce we get is probably just an opportunity to add more shorts. Don't be fooled if the rally is a powerful one too - bear markets are famous for huge, one or two day short-covering rallies. We may be in store for one of those soon.

Major Indices

The trusty T2108 indicator did close below 20 for the first time since March. When it hit this number in March, the Dow had a 400 point rally the next day. Could it happen right now? Sure, it's a possibility with the amount of shorts out there. I can't say it will - the VIX was much higher then and there was definitely more fear in the market. Since we are oversold, just be prepared for a brief rally and be careful with shorts. If nothing else, the market will just sit here for a few days to work off the oversold condition. You could grab some ultra ETF's (DDM, SSO, UYG) as hedges for a few days as protection - I may do that tomorrow. These would not be long term positions, however - just hedges.

T2108

I am not putting any longs on tonight because I do not feel comfortable buying stocks just expecting a one or two day bounce - I am not good at it. I would rather use the ultra ETF's for that function as a hedge.

The only area I would probably short right now is the oils I have below, and that is only if oil breaks here. Some of the stocks seem to be getting a bit tired to me. At the same time, USO is still setting up a bullish pattern, so if it breaks out, I'm sure these stocks will move higher. I am just trying to be prepared for either outcome right now.

EOG, ATLS, APA, DVN

I am putting these charts out here only as candidates for shorts - taking these now is risky and I don't know how much downside they will have right here. These are good stocks to keep watching however, because if we bounce for a few days, I think many of these could be nice short candidates. Keep them on a watchlist.

VOCS, SPNC, SOL, SVR

SYNA, GEOI, JST, CDS

ADM, CMG, IR, CHL

Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I will probably tighten the stops on my shorts tomorrow, even though I only have small gains on most. I don't feel like having them turn to losses if we get a powerful, short-covering rally. If it wasn't Fed week, I might give them a little more room, but I really don't know how the market will react to things. No matter what, however, things are still very bad out there and cash is still the best option unless you are already short. If you want to be a hero here and buy these dips, more power to you. I will be managing my current positions and not doing much else. Best of luck Wednesday.

Tags: SYNA, GEOI, JST, CDS, VOCS, SPNC, SOL, SVR, ADM, CMG, IR, CHL, DVN, EOG, APA, ATLS, T2108, Nasdaq, Russell 2000, Dow, S&P 500