Market Update

Today triggered several short-term extremes in the markets and the short-term model of the Nasdaq hit the oversold region. However, the methodolgy I use for trade recommendations on this blog is based around going with the prevailing trend (direction of 50 day moving average for simplicity). So I am not going to recommend a bullish trade here, because that is a counter trend trade, and I doubt the ability of the short-term model to clearly become overbought to signal the exit before we see new lows gain.

I do expect a strong bounce in the markets of 1-4 days starting tomorrow or Friday. The equity put/call ratio hit 1.16 today which is an extraordinarily high reading only matched a few times (3/14/08, 3/17/08, and 9/15/08). The reading was so high that it is beyond 3 standard deviations above the 20 day average reading.

The day after the March 14 incident the market had a large gap down that immediately reversed and the day closed well above its open. That day was the March 17 incident which is the highest reading that I am aware of. The market went on to make great gains over the next 4 sessions. The day after the Sept. 15 session there was a large gap down as well. Again the market reversed immediately and closed way above its open. The market went on to make great gains over the next 3 days though the two sessions after the 15th were very volatile.

So if we get a gap down tomorrow then I would consider that a buying opportunity for a very short-term trade of 1-4 days. If we gap up, then I would expect that a large up day is most likely, but I feel that the upside may not last as long if that happens.

This market is a very dangerous environment, so don't risk too much on any trade.

Pete