Ao minuto: Praças europeias respiram de alívio, indiferentes a possível violação de cessar-fogo

[Camisa Roxa]

Several emails from readers recently have pointed out that the market is getting
oversold and should soon bounce. But we really need an objective measure for how
oversold the market actually is. As you may have seen in past Daily TrendWatch
updates last November and July, I like to focus on the Bullish Percent charts on the
major averages, which can be found at www.StockCharts.com. The Bullish Percent
indicator is defined as the percentage of stocks within an index that are currently
on buy signals according to their Point & Figure charts. Point & Figure is a method
of plotting charts that focuses on breakouts, regardless of how long they take to
occur. We will cover more on Point & Figure in a coming TrendWatch, as it is an
excellent method for sifting through noisy markets to focus on the true trend.

Currently on the three major indexes, the Dow Industrials are the most oversold,
looking at a Stochastics indicator over roughly the last three months. But the
problem is the Dow has just moved into oversold territory, and the indexes have a
tendency to stay oversold. So you want to wait until we cross out of oversold
territory, above the key 20 threshold on the Stochastics indicator.

Another rule of thumb is to wait until the 21-day average reading (known as %D) in
the Stochastics turns up after being below 20. While this method may not catch the
bottom as well, it appears relatively safer. Look at the last few times the S&P 500
saw this 21-day Stochastics %D line cross back over 20 (in red on the lower half of
the $BPSPX chart). This signaled nice bear market rallies to come. As you can see,
we have not even seen the %D line get below 20 yet, so this suggests more downside
here too.

S&P 500 BULLISH PERCENTAGE

The Nasdaq Composite has been acting relatively strong here recently, which has some
analysts making bullish calls for the market. Indeed, I like to see the Nasdaq
outperforming the Dow to imply that stocks are being accumulated. But looking at the
Bullish Percent chart, you can see that we have just recently come out of overbought
territory and are not even in oversold territory yet.

NASDAQ BULLISH PERCENTAGE

So the bottom line is that while the market is getting oversold, we're not nearly
oversold enough to suggest a bottom yet.


SUPPORT RESISTANCE
Nasdaq Composite 1280 1320
S&P 500 830 860
Dow Industrials 7890 8085