Thursday, June 26, 2008

Very Oversold Right Now - A Short Relief Bounce is a Strong Possibility

Here is the T2108 and it is at very extreme levels. That doesn't mean it can't go lower, but the chance of a bounce soon is a very good possibility. We are quite stretched, particularly on the S&P 500 and Dow. That doesn't mean the bounce will be long if we get, but will more likely be just one to relieve some of these oversold conditions. I could see us bouncing 400 or 500 points on the Dow, perhaps in one or two days, before heading lower. Remember, bear market rallies are very sharp and powerful - we may be in store for one of those.

T2108

The VIX is the main reason I expect any bounce we get to be a short-term phenomenon however. A true market bottom is not put in with the VIX in the mid 20's. When we start getting up near 30-35, then maybe I will think differently. There just isn't enough fear or panic out there right now. The selling today was very systematic from what I see and did not seem panicky to me at least.

VIX

Here are the charts of the indices. I tried to explain why I expect a little bounce tomorrow that will take us back up to around the 9 day moving average. I don't know if we would get any higher than those levels, at least not on the S&P and Dow. Overall, however, I think in time we are headed much lower than we are right now.

Here's what the Worden Report had to say about things tonight:

"If this is the end of the bear, I would have expected the highest volume day since the May tops. I also would have expected a higher VIX--X. Something approximating the level reached at the March low, which was about 32. Today the VIX closed at about 24 ......This was a restrained capitulation--YES. But it is not the final shakeout. I would expect all four Majors to be under the March lows and possibly under some other lows yet to be formed."

DOW
S&P500
Nasdaq

Depending on how brave I feel tomorrow, I may try to play a bounce in individual stocks for one or two days, but only if I feel we are having a little panic selling tomorrow. What I am hoping for is another gap down and some strong selling in the first hour of trading, from which I can start covering some of my shorts. The charts below are the ones I would look at going long - I will probably just play the index ETF's and go from there if I do anything. I am looking for the S&P to get down to its March lows and may enter there looking for a bounce. Then again, I might just cover my shorts and sit tight as well. I don't really know.

TEX, WSCI, DDM, SSO
SWN, ICO, MOS, POT
IPHS, APWR, CYBX, ENER
Charts from Telechart2008, Courtesy of Worden Brothers, Inc.

Most evidence points to us getting a bounce at some point soon, but it doesn't have to happen, I guess. And tomorrow if we get more selling like we had today, with just a steady move lower and no severe dips, then I might just sit tight with my shorts too. I don't expect that though - if we would get another day like today, with no bounce, and get stretched even further to the downside, then I think you are looking at a very rare and dangerous situation going into next week, similar to what happened in October of 1987. I don't think that is going to happen.

We'll see what tomorrow brings - I am guessing it will be interesting if nothing else. I plan on tightening my stops on my shorts and will cover them if we get a big move lower. That's what I am expecting to happen. Whatever you do, please be careful. This is not the time to make big bets on anything. Best of luck Thursday. Time to watch the NBA draft.

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