Clearing Oversold Conditions
The following is an excerpt from the November 29, 2011 blog for Decision Point subscribers.
The markets traded mostly sideways today as yesterday's leap up was still being consolidated. This is allowing oversold conditions to continue to unwind and clear.
STOCKS: Based upon a 11/24/2011 Thrust/Trend Model SELL signal, our current intermediate-term market posture for the S&P 500 is bearish. The long-term component of the Trend Model is on a SELL signal as of 8/17/2011, so our long-term posture is bearish.
After yesterday's big move higher, today's price movement was a let-down. The Thrust/Trend Model IT SELL signal, along with a long-term bearish outlook, lead us to believe that once oversold conditions clear, prices will likely turn back down.
Today the CVI ticked down slightly and remained neutral while the STVO continues to move higher out of extremely oversold territory.
Both the STO-B and STO-V are now turning neutral.
The McClellan Oscillator is still somewhat oversold along with the 5% and 10% indexes, but they are getting back to neutral.
Despite yesterday's jump and today's slightly higher close, both the PMO and PBI continue to move lower. Remember, in order for our intermediate-term Thrust/Trend Model signal to switch from SELL to BUY, BOTH the PMO and PBI need to cross up through their EMAs.
Bottom Line: We think yesterday's surge deserved more follow through than it got. Short-term indicators are now clearing out of extremely oversold conditions but are still mostly oversold. Once these conditions clear, either through more consolidation or some positive price movement, we should see the market get back in line with our mechanical model SELL signals.
GOLD: As of 11/3/2011 Gold is on a Trend Model BUY signal.
Gold (GLD) spent the last two days moving higher. The gap up on the GLD chart and now cluster of bars look like a possible island formation with a technical price reversal possible.
On the six-month line chart below we see in the thumbnail a small double-bottom formation. I've annotated the neckline (middle line) and the minimum upside target line (drawn the same distance from neckline as the neckline is from the base). Today's close reached that target so a reversal from this point is certainly possible.
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CRUDE OIL (USO): As of 10/27/2011 United States Oil Fund (USO) is on a Trend Model BUY signal.
USO had a breakdown over a week ago and is now in a snapback to the violated trend line. PMO bottomed and is rising. Volume expanded significantly today.
BONDS (TLT): As of 4/26/2011 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model BUY signal.
TLT broke down below the ascending wedge yesterday but recovered by day's end to close just under the rising bottoms line. Today in similar fashion bonds opened lower, recovered somewhat but ended up closing just below the rising bottoms.
While the technical breakdown occurred yesterday, it did recover by day's end. Today's price action doesn't instill confidence when you look at the 10-minute bar chart for TLT, we see that price began to breakdown by late afternoon. We see a clear bearish double top now.
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