Here is an excerpt from my latest Weekly Strategy Session, which I published earlier today for members (12631 subscribers receive the Strategy Session each weekend, at no additional cost). Please keep in mind that this is just one small portion of the Strategy Session, as I also include tons of actionable trading ideas, specific price levels to watch on the major averages, and a multitude of educational material.
After the weakness we saw in the market last week, stocks can now be deemed short-term oversold, according to a variety of technical indicators.
As an example, the NYSE McClellan Oscillator (“NYMO”), which is a simple market breadth indicator tool, finished last week at -80.14.
Generally speaking, when NYMO is above zero it tends to indicate bullishness for stocks, and below zero, bearishness. However, extreme readings can indicate overbought or oversold conditions. Above 50 is considered to be overbought, while below -50 is considered oversold.
Here, you can see the oversold condition. We have looked at the previous NYMO divergence to price before in these Strategy Sessions many times, with price making higher highs from May until earlier this month, while NYMO sank into negative territory. And I will delve into those continued divergences in a later subsection.
For now, simply consider this chart as evidence of that short-term oversold condition in the tape.
However, it is crucial to frame that short-term oversold condition within the context of our ongoing thesis that the market has become increasingly selective and indeed lethargic in recent weeks, underneath the surface. In and of itself, an oversold condition is insufficient evidence of a good market low.
And that is why…(cont’d)
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