ST oversold but it probably won't mean much aside from a dead cat bounce

Market action is quite similar to the begining of the correction that happened in Janurary. We saw a sharp move down that made the market very ST oversold to just about the same severity as it is now. There's 2 charts below. The first is the market and the second is the overbought/oversold indicator. The blue circles highlight what happened in Janurary and the green circles highlight what has happened now so far.  In Janurary, after the initial plunge, the market got very ST oversold and chopped around for about a week working off the ST oversold condition before making another move to lower lows. I suspect something similar will play out this time as well but don't expect every wiggle to be the same....no two historical charts are ever the same. Given that the market closed near the low of the day, the best the bulls can hope for is a choppy basebuilding action near current prices. That's unlikely however. I suspect we will eventually see lower lows.


Don't get too obsessed about the day to day wiggles. The bottom line is that the bears have the ball now and so let's see what they can do with it untill the indicators give the green light for the bulls again. Unless you're a day trader, bounces are not to be trusted at this point as it's likely a retest or lower lows will follow.

To my delight my long positions actually advanced as whole since the market started going down last week making new highs since I bought them about 2 months ago but I'm trimming/cashing out on any positons that are getting overbought because even though my positions have been fairly non-correlated with daily market action, that can only go so far when they get overbought and if the market has another stab lower in it which I think it does. If I'm right about the market, it's highly probablable these overbought stocks will come down to earth since most of them are in the oil ang gas service sector which is ultimately driven by the price of oil and gas (more so the former) and oil has been moving in lock step with equities in general.  These service stocks have done very well because they have reported a big surge in earnings in Q3. Their earnings cycle bottomed in late 2009 - early 2010 unlike with general equities in which earnings bottomed in the early 2009. There is still at least another year of an upswing in this sector so long as oil doesn't tank below $60 or so.

On on completely off topic note, go to google maps and get directions from China to Japan. Check out step #42.