A Little Over-Sold

Markets still appear slightly oversold, even with a big rebound on Thursday and Friday last week.

In fact, all three of the major indexes (DJIA, SPX, NASDAQ) have recovered their buy signals. This is a sign that volatility is again on the decline as markets seek to find traction.

Most of the underlying technical data is positive at this point. So, from a probability standpoint, it looks like a lot of the damage may have been done last week. Looking forward to this week, there’s a price gap to fill for the SPX at about 2900/2911. This is not a significant technical issue though as recent trading has already worked through this area.

More likely, there is some downward pressure because of the two-day recovery rally and some short-term position adjusting. For now, the technicals do not reflect a significant pull-back to the downside. Rather, the 200-day moving average appears to be fairly significant support.

On the flip side, there appears to be little momentum to move this market to significantly higher highs in the near term.

So sideways still looks like the theme of this market, with a bias to climb slightly higher over the rest of the week. If the 200-day moving average gets breached, then it’s time to reevaluate. Until then, the theme appears unchanged.

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