Monday, March 2, 2009

We Are Oversold, But Again, Does It Matter?

Here are some charts of importance tonight. Both of the indices are obviously very stretched here and are at levels where they have bounced before. Of course, we could have said the same thing last week and look where that got us.

S&P 500

Here are the oscillators and indicators I use. Most are pretty stretched but can still move lower from here - they have a little room. The VIX continues to confound me - I have no clue how we aren't higher on this.
All Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

Here are the numbers I was talking about in my earlier post. I am trying to compare today to the readings I got the day before the November lows. As you can see, we are just not there yet in terms of selling pressure, beaten down stocks, etc. Another day or so like today, however, and we will be there - I am pretty sure of that.

I would not be surprised if we get a small relief bounce tomorrow but I think that would be the absolutely worst possible outcome for everyone involved. A relief bounce, even if it is a day with big gains like last Tuesday, will only postpone this inevitable decline and hopeful washout. I am obviously biased because I am holding shorts overnight, but I think the best thing that could happen is another gap open to the downside tomorrow with continued selling. We need to get some fear. We need to get some panic. If that happens, although it may be painful, it will get ever closer to those ultra-extreme levels from which we may be able to get a meaningful bounce out of. If we get to those levels, I would probably look at putting on some swing longs. As it is, I think you stay in cash if you are not already short here, and I may even start covering my shorts tomorrow. It's too risky to do much of anything new right now. We'll see how it goes. Be careful out there because we are getting to one of those weird points where anything could happen. I am taking the day off work tomorrow so I'll try to post some thoughts on Twitter intraday. Best of luck.


Charlie G. said...

Hey, Mac - #2 came 17 days early for us, but she is doing great.

Hope the relief bounce doesn't stop you out. From my brief time following your blog, you're usually right with reading oversold / overbought conditions.

Mac said...

Congrats Charlie - I send my best wishes your way (as I listen to my 2 month old scream on my wife's lap next to me) :-) It is a change, no doubt. It's all good though. Best of luck.

UrbaneGorilla said...

I suspect that even if we drop again, we won't get the panic. Just look at the VIX..... And Mac. That isn't your son screaming, it's the wail of millions of retirees channeled though your son..

Good article.