Further nuclear reactor drama in Japan translated to a fairly large gap for the US markets this morning. Considering we are now so oversold technically, this could be the start of a several day “relief” rally.
One of the many ways to determine the market is “oversold” or “overbought” is to use the McCellan Oscillator. It is a momentum indicator that gauges breadth from net advances within the major indices (read all about it at stockcharts.com). Definitions aside, when the Oscillator drops below 40 (see chart below), it can be surmised that the market is “oversold” which can also signal a rally is around the corner. Today brought us down below 70 which last occurred in May 2010. Like all indicators this one has its flaws, but is still interesting to track.
Cash is still king but for day traders the recent spike in volatility is rich with opportunity. And for those investors who are itching to get back long, sort through your watch lists and keep a close eye on the stocks that are holding up during these tough times. Those will most likely be your leaders when the market turns around.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Up | Up |
| Intermediate | Down | Down | Down |
| Short-term | Down | Down | Down |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
