Markets went once again into extreme oversold mode on Wednesday. Since the May highs, the markets have hit extreme oversold levels 23 times. During the summer 2010 decline, the markets went to extreme oversold mode 7 times. During the decline from September 2008 to March of 2009, the markets went to extreme oversold levels 15 times. So if the market seems more volatile and less predictable than you remember, that’s because it is. And don’t ask me what this means or where this is leading because I don’t know. We are in a market environment without precedent in recent history. A study of the 2000-2003 bear market might shed some light on the current market, but I just don’t have the time for such an endeavor.
$DAX: The $DAX is now down better than 20% on the year, pushing it back into Bear Market territory. During September, the $DAX was off by about 35%. Woes in Germany will bleed over into all the other Euro nations and most likely will find their way across the Atlantic to our shores. It will be important to pay special attention to the $DAX in the weeks and months ahead.
Because the markets went into extreme oversold mode this past Wednesday, and because retail sales have apparently set new records, thanks to inflation, then one would have to expect some kind of bounce in the week ahead. Things like a P/C Ratio at 1.32 will probably help as this shows that bears have piled on perhaps too heavily.
$TRAN was off 6.35% for the week and has pushed into oversold territory, at least based on the Stochastics on the chart below. It wouldn’t surprise me to see $TRAN bounce up above the 50MA and then up to the 20MA now at 4839. That would be quite a bounce but even so I don’t think the bounce will last.
Weekly chart of $SPX, which continues to break down. $SPX off 4.69% for the week and now off 7.55% for the month. While I think we could get a bounce early in the week, it will take more than just a couple of days to turn the weekly chart from bearish to bullish. Still time for Santa to show up and push indexes into positive territory before the end of the year. Or maybe we all just get coal.
Through the course of evolution, only the fastest, most alert species survived. Paranoia is in our genes.
GL in the week ahead.