Heading Towards Oversold

Tomorrow will be the tenth day of this correction, which means we are nearing an oversold reading.  At tomorrow's close we will be oversold for the first time since early October. Typically the first oversold reading after a strong move higher is buyable. If the market were to decline through tomorrow, it would set up a decent risk/reward trade and I would likely increase my long exposure.

If there were any doubt  yesterday about Italy needing help from the EU, that doubt is gone today as Italian bond yields are trading well above 7%. It was a matter of time before we reached this point. We are now likely to see the EU demand reforms in exchange for a bailout. There is likely to be a song and dance but at the end Italy has little choice.

6 comments:

ichern18 said...

Oh they have a choice.  They can default and let the banksters eat their losses.

Tsachy Mishal said...

Not going to happen. In the near future at least.

Aaron Boone said...

I know you base your oversold condition off of time but the action doesnt feel oversold.  From Nov 1 unitl yesterday we grinded up everyday.  No charts look oversold.  If anything we are still working off the overbought condition from the move off the lows in early october.    

About Italy,  IMO the ECB will eventually be forced to say they will defend a certain rate on italian bonds.  Doesn't sound like the are there yet but I see not other way out.

suprinder said...

Neither the McClellan nor Stochastic are near oversold, what indicators do you use to gauge this.

Tsachy Mishal said...

I use the 10 day moving average of the advance-decline line. Will be oversold at the close tomorrow.

Tsachy Mishal said...

The S&P 500 is down over 50 points during this 9 day period.