Wednesday, June 23, 2010

State of the Stock Market - 6/23/10

The Fed day came and went today with little fanfare, as the market didn't do a whole lot.   Stocks continued to sell off hard for the first hour of trading, but bounced back from there and slowly climbed off of those morning lows to close with small losses.  Volume was lower and has been lower all week.  

Right now, we are at short-term oversold territory on the indices so a bounce wouldn't surprise me over the next few days.  It's not a given as you can see but usually when we fall from extremely high RSI(2) levels to extremely low RSI(2) levels so quickly, a bounce is somewhere in the cards.  The last time the RSI(2) rose and then fell so sharply was back in September of 09.  Check the charts out below for a better look at those possibilities.

 Charts from Telechart, Courtesy of Worden Brothers, Inc.

As I look through individual charts, most leading stocks have held up fairly well the past three days (meaning they are all still above their 20 day moving averages) and are also oversold in the short-term.   When you look at charts like APKT, AKAM, CROX, VMW, and DECK, there were buyers coming in today when they were down to push them positive and that is also a good sign.   So although the previous two days saw some extremely bearish intraday action, the bears really haven't done as much damage as it might seem so if I had to pick a side, I would say I am leaning slightly bullish here, at least for a little bounce.   My numbers remained mixed overall however so I will probably remain heavily in cash.   It remains a difficult market overall and remaining nimble and flexible is key.   Good luck out there.


Anonymous said...

Thanks for showing the charts with the RSI(2). Very interesting.


Mac said...

No problem Mike - they aren't perfect but seem to normally work well for predicting a bounce or at least showing when it is risky to short and vice versa when you have an overbought reading.