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One of the characteristics of an intermediate-term bull market is that price corrections tend to be sharp, scary, but ultimately swift. We had experienced a time consolidation in many areas of the market recently, but today is obviously giving way to more of a price pullback. The issue now is whether it is worth turning bearish and putting on shorts.
Looking at the daily chart of the Russell 2000 Index, you can see that today’s candle is entirely below the lower daily Bollinger Band. This is a very rare occurrence and is indicative of oversold conditions. Of course, just as being overbought is not a reason to short, being oversold is not a reason to necessarily buy. The idea is to push the analysis one step further.
Here, we have a market that is still in an overarching uptrend. In bull runs, oversold conditions represent a much higher percentage buying opportunity than in bearish trends, where buying oversold is usually the root cause of losing capital and exacerbates the downtrend via failed bounces.
Even if the bulls do not show up right away, pressing shorts when you have a move in the small caps entirely through the lower Bollinger Band against the backdrop of an uptrend is likely not the correct strategy here.
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RUT need to get back to MA 50 (792.08), i think…
At what point do you weigh potential fundamental factors (Iran, China, Europe, etc.) more than technical ones?
Seems to me that there are a host of events that could wreak havoc with the market and that more often than not, fundamentals rule over purely technical arguments.
Just curious, not rabble rousing, mind.
A Black Swan, or “exogenous event” can always come along and trump technicals. However, they usually come within the context of a bear market or, as in the case of the October 1987 crash, even if they come in a bull market there are a few weeks of downward price action before the event. Usually, price is out in front of news, and news flow tends to exacerbate the trend.
Chess –
Thanks for the reply. Not sure I buy that fundamental changes are usually heralded by technical indications, though.
In any event, thanks for all the hot pics and picks you’ve been putting up. Could use more pics, though, as they’re immediately gratifying and don’t require putting money at risk!
nothing is more important then technicals!!
nothing!
To JB –
Nonsense. Tell that to anyone who has held a pharmaceutical company whose great looking chart is trashed by a drug trial failure.
Sorry, but unexpected negative events can come out of the blue and destroy a stock price.
Of course anything can happen – but it’s MUCH more likely that the technicals will front run any news we hear.
The news isn’t important – what’s important is what the big money is doing ..
BORN AND CPST