Technical Analysis: Oversold

It’s been a long time since the market closed in oversold territory – since late September, as a matter of fact. It took a couple of days then, but a good bounce followed. Can the market repeat here? Well, sentiment isn’t everything we’d like it to be, with the equity put-call ratio closing way down at .62, but we do like that big spike in the VIX (first chart below, the options volatility index), so we’ll call the sentiment picture mixed to positive. The internals were generally positive today, especially new highs and lows, and improved over yesterday – that’s a possible sign of accumulation here. We’ll see if it continues tomorrow. The charts are less positive, but an oversold market has a good chance of bouncing even if stocks eventually continue lower. The Nasdaq (second chart) has clearly broken down. 1865 and 1842 are important supports, and 1900 looks like solid resistance, with 1920 above that. The S&P (third chart) is also broken. Next supports are 1025 and 1018-1020, and resistance is 1040-1043 and 1048. The Dow (fourth chart) has resistance at 9700-9765, and support is 9600, 9500 and 9400. Finally, the all-important Transports (fifth chart) had a breakdown out of a small head-and-shoulders top yesterday. The bulls need to recover the neckline of that pattern at about 2925.

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