10/02/2008 Market Recap: Market Oversold

Cobra's Market View Private Messaging System shows:

Yesterday probably it was too early to predict the coming rally of the market by an Ascending Triangle which could breakout in either directions.  In some sense, I might have been unintentionally influenced by the passage of bailout plan by the Senate.

Nevertheless, I think the market might rally tomorrow.  Furthermore, I believe the intermediate outlook is promising.  In fact, yesterday I forgot to say (sorry for this), I am not sure if we will see a lower low that is lower than Monday low before the mid-term rally, therefore you'd better to be cautious and do it modestly for the bottom fishing.  This is also the question raised by a reader: why do we start bottom fishing while no mid-term buy signal shows up?  If we do it after a mid-term buy signal, it will be following the trend, instead of bottom fishing.

2.4.4 NYSE McClellan Oscillator.  Note the positive divergence prior to the market bottom previously.  If the history repeats itself... you know what I am going to say.  Note the red bar at the bottom, NYSE new low is positive divergence today, which is quite rare to see.


2.4.3 Breadth Oversold/Overbought Watch.  RHNYA and NYA50R are still oversold.  Once a breadth signal is oversold, it will be corrected very soon.  Take a look at the two indicators on the following chart, has the black curve ever stayed below the blue line for very long?


Evidence for tomorrow's bounce back:

1.3.7 Russell 3000 Dominant Price-Volume Relationships, 1674 stocks price down volume up, which means the market is oversold.  Take a look at the green comments on the chart, what happened in the next day?


1.0.4 S&P 500 SPDRs (SPY 15 min), 1.1.5 PowerShares QQQ Trust (QQQQ 15 min), 1.2.4 Diamonds (DIA 15 min), Bullish Falling Wedge, and both MACD and RSI show positive divergence.  You may have seen this many times and know how accurate this pattern is.


1.1.6 QQQQ Short-term Trading Signals. VXN is overbought, and RHCOMPQ is overbought too.  More importantly, NAADV has reached a level where the rebound happens on the next day (refer to the green dashed lines).


1.1.7 TRINQ Trading Setup.  TRINQ is much higher than 2.0, which means QQQQ should probably bounce back tomorrow.  So far the success rate of this setup is 80%.

Canadian Market:

1.4.4 TSE McClellan Oscillator, oversold and the positive divergence at the same time.  Today TSE plunged for over 800 points, but there were not many new lows compare with Monday, which I believe it's good.  1.4.3 S&P/TSX Composite Index (15 min), 15-min chart has also bullish falling wedge plus MACD RSI positive divergence.


Some interesting charts:

5.0.2 S&P Sector Bullish Percent Index.  The bullish percent index of the energy sector is the historical low, period.  No further comments.


3.1.0 US Dollar Index (Daily).  US dollar has rallied 8 days, it's overbought, it's invincible! Well, this rally is not because of strong US dollar but weak Euro, period.  No further comments.


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