$SPX produced a spinning top indecision doji today. If you look on the chart below, you’ll see several such candles in a couple of groups so we may get another such candle tomorrow as the markets pause before continuing with the dominant trend to the downside.
Per the stochastics that I use on this chart, the 5,3,3 & 20,20, the markets are extremely oversold and are even more oversold than they were in June, but there’s nothing that says they can’t continue to remain oversold for extended periods of time before the market reacts to the upside. Actually, what the current oversold situation looks like is late May through late July of 2008 so don’t be surprised if the current oversold situation persists.
The weekly $SPX chart is showing signs of stress. The RSI 14 topped out just at 70 on the weekly chart back in mid-September. Since then the RSI has dropped to 41 and is probably on its way to 30. At its current rate of descent, to get to 30 will take at least three more weeks after this week, so sometime in early December. Perhaps at about this same time, the ADX on the daily chart may be in the 30 area at which point we would start watching for this to roll over indicating a change in trend.
It’s a big chart so to see it better just click on it and it will open in a new window.
We got a pretty strong move to the downside today on the $NYSI and this means that the $NYMO/McClellan Oscillator is now very oversold. Put this together with today’s indecision doji and we could see the market consolidate at current levels and we might even get a bit of a bounce to boot. But just remember that there are a lot of people trapped at higher prices and they will sell into any bounce we get and that will bring the bounce to a stop. Also, there are a ton of people who are going to be looking at higher capital gains taxes next year, and from then on. People who will be impacted the most by the increase in higher capital gains taxes own about 1/3rd of all stocks. Historically, when capital gains taxes have been raised, stocks have suffered in the month prior to the increase. So, while the market may be oversold going into December, as mentioned above, it may not mean a thing.
Just be careful.