Trade Set-ups

The last 2 days of big selling pushed the short-term model into clear oversold territory. However, there has been no significant reversal that gives indication that the recent selling pressure has hit a short-term climax. Additionally, the only real technical support underneath current prices is the October lows around 840 on the S&P 500.

I would be willing to suggest a trade on SSO if the October lows are violated and there is clear indication of intra-day reversal or a bullish candlestick formation. Ideally the short-term model would be oversold and divergent at that point, but oversold with signs of reversal would be good enough to make the trade.

Based off of all the information I consider in recommending these trades, I think the best way to play this market in the next few weeks is to assume rather high volatility, with little directional bias. I would give more weight to overbought conditions than oversold, because the "keep it simple stupid" principle tells me that the market trend is clearly down, and it makes best sense to trade overbought signals in a downtrend. The high volatility may indeed present good set-ups in both directions though.

Pete