Lets take a quick look at the SPY chart which reflects the S&P500 index below. The SPY closed right around that 197 support area after the 2 day massive selloff. This may provide some support for the markets and we may see a bounce Monday.
Here is a closer look at the Nasdaq dip (QQQ’s) – It breached below the 104.50 support area and kept going on extremely higher volume.
Below are a few overbought / oversold indicators that can be used for market breadth and overall sentiment. Most, if not all of them are indicating there should be a short term bounce in the very near future.
Percent of NYSE stocks above the 50MA – As it sits now, there are roughly 19% of stocks that are above their 50MA after the recent sell off. If we are to assume past movement would indicate future action, stocks are due for a bounce at this area.
NYSE Bullish Percent Index – Pointing to a bounce soon
NYSE New Highs / New Lows Index – Also at its lowest level in years
VIX Volatility Index – Measures the fear in the market. When the VIX spikes to these levels, it indicates there is extreme panic and the VIX is set to normalize soon which results in an upswing in stock prices.
Percent of NYSE Stocks above the 200MA – Another indicator at its lowest levels in years.
NASDAQ McClellan Oscillator – Overbought / Oversold index (One of my Faves) – Market set to rebound when at these levels
Percent of NASDAQ stocks above 50MA – similar to that of the NYSE but NASDAQ Stocks
NASDAQ New Highs / New Lows – Currently at the same levels of the last big pullback we had in October 2014. Indicative of a short term market bounce.
Disclosure: Currently long Calls in NFLX, QQQ and AAPL
The NYSE McClellan oscillator ($NYMO" target="_blank">NYMO) is a market breadth indicator for the NYSE which is used to evaluate the rate of money entering or leaving the market. It has become widely used as an indicator to measure overbought and oversold conditions in the market and has proven to be very effective.
The market has recently been in correction mode and I have been watching the NYMO closely to see when the market could potentially bounce. When the NYMO reaches below -80, this indicates the market is in oversold territory and is setting up for a potential bounce. The NYMO recently hit -107 as seen below and when it has reached these levels in the past, the markets have reversed hard to the upside! As I pointed out before the Thursday reversal, the market was due for a bounce and I initiated a position in SPY calls in anticipation.
NYMO – 6 month chart:
NYMO – 3 Year chart:
The most crucial indicators that may dictate future price movement when trading off charts are the most common and will always be displayed on a chart. These are Price Action and Volume!!
Price is the most basic component of stock charts and can be the most indicative of a future price movement. short term movement either up, down or side ways can be a valuable indicator when trading based on technical analysis. Most of the lagging technical indicators that analysts use are calculated using short term price movement. Using certain charts such as candle stick charts and HLOC bar charts can reveal even more detailed information by including opening, closing, high and low prices for the specified period.
Volume in another key indicator that may be of great value when determining if a stock is ready to make a move . A drastic change in volume within a given time period may reveal increased buying or selling interest in a stock.