The trading week was starting to look as though it was going to end without
any excitement. Wow, did that ever change on Friday!
On Wednesday Aug 24th, the stock market sold off to a level which I consider
to be an extreme oversold condition for the week. While I do have several
criteria as to why and how I come to the conclusion, the chart and indicator
below show me when the market is oversold and ready for a bounce.
The green shaded areas on the bar chart are oversold extremes. Wed, Aug 24th
the SP500 closed at this extreme. The following day the market struggled
to find support but eventually did with the big pop in price on Friday.
You will also notice the red line indicator near the top of the chart. This
is a little volume ratio I use to help confirm when the market is getting
overbought and profits should be taken.
Second Oversold Confirming Indicator - Price Spike
Not only was the market oversold based on my proprietary indicator above,
but the market also flashed us a post-market price spike. I have talked about
these many times before and how it's the market giving us insight into where
the computers are likely to run the market or at least try to run the market
in the next 48 hours. In less than two days the spike was filled for us to
pocket another winning momentum trade.
Extreme Markets Conclusion:
In short, as traders we need to trade what see not think. It is easy to have
market bias, meaning you want it to go in one direction and you favor your
thinking and analysis that way. If you can completely avoid doing this, you
will be highly profitable as a trader.
I see this time and time again, when the market gets oversold/overbought,
or flashes us a price spike just before some news event. Its tough trading
in front of pending news, but 80% of the time these moves play out just as
expected.
The last big FED talk, gold flashed spike up a day before the news and it
played out in a big way. This week both the SPY and GLD spiked up a day before
and both reached their spike targets Friday big fast profits. I will post
the gold spike on my
blog this weekend.
