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Stock Market Oversold Bounce...

Stock-Markets / Stock Markets 2014 Aug 05, 2014 - 06:23 AM GMT

By: Jack_Steiman


The market was due for a bounce today as the sixty-minute short-term charts had gotten very oversold. In the case of the Dow, extremely oversold, with a reading at twelve late last week. That's simply unsustainable, and, thus, some buying was necessary for the market in order to calm down the excessive compressed oscillators we saw. The market struggled early on today to get some type of bounce going, The bears had simply run out of steam as they have caused quite a bit of technical damage, but used up a tremendous amount of energy to accomplish that. Markets can only get so overbought or oversold before some type of reflex bounce occurs. Not only that, but even the daily RSI hit 30 on the Dow. That didn't take long. Only about six hundred points accomplished that feat.

So yes, we were due for a rally, although you can always stay ridiculously oversold. But it's uncommon in bull markets, and, yes folks, we are still definitely in a bull market in my humblest of opinions. I can always be wrong, but my work says the bull hasn't finished yet. When you're in a bull market, it reacts more according to the bullish laws. Once you get a strong, powerful move down that gets violently oversold, you should expect a bounce back up to back test lost moving averages on either the sixty-minute monthly charts, or the daily, six-month charts on the key indexes. Today we saw some of that take place. We'll learn more in a day or two as things should fail by the end of the week, but, for now, today behaved in a fashion one would expect in a bull market after the first powerful move lower.

Froth was rocking today. Many stocks in that area of the market that were recently hit very hard had strong bounces back up today. Stocks like Inc. (AMZN), etc. Some not so frothy stocks were up huge today, such as Incorporated (PCLN), Google Inc. (GOOG), and others. That's the headache with a market such as the one we're in now. Timing them to play them properly either long or short is very difficult, and if you're in at the wrong time the pain can be very intense. You should be exercising extreme caution before playing these stocks and keep tight stops.

Even though the stock market has taken a strong hit this past week, if you were short, these stocks gave you tremendous pain today. Avoiding these stocks in general in this market environment is probably the best advice, although, do what feels right to you, of course. These types of markets are very emotional, and if a stock goes against you out of the box the tendency is to react very quickly causing more stress than you need. You sell when you should be holding, and hold when you should be selling. Lots of intense whipsaw, because it's still a bull and not a bear. Going straight down more than 3-5% doesn't occur very often when you're in a bull market, even if it's correcting overall. Just be careful!

So let's spend a moment and go over critical areas of support and resistance on the Dow, S&P 500, and Nasdaq. Let's start with froth land. The Nasdaq has support at Friday's low or 4324. Resistance comes in at two key levels. The 20-day exponential moving average is at 4413, and the gap down bottom is at 4430. So the Nasdaq, for now, is stuck between 4430 and 4324. Next we look at the S&P 500. 1948 is resistance, or the 50-day exponential moving average, while 1961 is next, or the 20-day exponential moving average. Like the Nasdaq, support is at Friday's low, or 1916. The Dow has resistance at 16,583 and 16,733, or its 20- and 50-day exponential moving averages on its sixty-minute short-term chart. There's lots of resistance and support in between where the markets closed.

Keep it light and appropriate for now.



Jack Steiman is author of ( ). Former columnist for, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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© 2014

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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