I've felt often 'underwater' of late here in the water-soaked Northern California coast, but the market stopped taking on too much ballast and started a meaningful rise. Time to address this recent rebound!

MAILBAG QUESTION:

"I assume that you see a bottom made this week just above 17000? It seemed there were signs to get bullish again with charts and such."

MY RESPONSE:

Yes, if we look at the S&P chart first as an example, SPX tends to trade within 3 to 4 percent above and below its 21-day moving average. It got close to that on this recent low.

I most often talk about price action and the possibilities of a tradable trend reversal (i.e., offering opportunities of 2-3 week's duration) combined with key overbought/oversold indicators, which for me tends to be the 13-day Relative Strength Index for such extremes in the INDEXES (NOT in stocks).

A different type of 'overbought/oversold' extreme is seen in how bullish or bearish options traders get, best seen in my CPRATIO indicator at bottom. Just a single day here and there (more so as also seen with the 5-day average) in bullish or bearish extremes suggest looking for a bottom within 1-5 trading days.

At the recent SPX bottom, intraday lows were just over support implied by the lowermost price band; the one that shows a line that is 3.5% under the 'centered' 21-day moving average. The closeness of prices to the lower 'envelope' line at 3.5% below the 21-day average suggested prices could be at or near a bottom. This view was in turn supported by the oversold RSI extreme as highlighted with the green up arrow.

Moreover, there were some key bearish daily sentiment readings in terms of options traders going decidedly more bearish before this last upside reversal occurred. See the CPRATIO indicator bottommost on the SPX chart.

The highlighted text says it all with the Dow below ...

With the Nasdaq 100 recent low in the 4100 area, there were several chart and indicator aspects to say 'bottom'! Namely the retreat to and 'hold' at the low end of the pivotal upside chart gap from October. This area was not far beyond the 'typical' low extremes in terms of the 21-day average.

The strong 'supporting' technical aspects of an indicator is seen with the Relative Strength Index (RSI) falling into its 'typical' oversold extreme zone.

Moreover, the Nasdaq 100 Volatility Index (VXN) has often gotten to an 'extreme' right at or near a bottom. Stay tuned!


GOOD TRADING SUCCESS!