As I’ve said for several weeks now, we’re oversold, yet with more room to the downside.
We’ll get some more cat bounces for sure, but there simply has not been the necessary capitulation (and resulting rebuild) yet.
I also said that this time we are very unlikely to get that V-shaped bounce that occurred in 2020.
This recovery will be slower and in many ways easier to recognize and trade when it comes.
In the meantime, we’ll have to pick off the cleaner setups when they arise, and make our overriding priority capital preservation.
Talking of which, one of our more recent members has reported extraordinary savings (literally 7-figures) simply by applying our processes, which he previously was not aware of.
Of course in some cases there will be simple options strategies to take advantage of, but for the main part right now you’re best off to avoid pre-earnings and use these conditions to get yourself ready for the next wave of high-probability setups en masse.
Keep in mind setups near Key Levels. They’re safe, they’re highly effective, and they have the lowest risk.
When it comes to overbought (after a parabolic move), most instances will run out of steam, making a particular options strategy (bear call) higher probability.
When it comes to oversold in overall bearish conditions, many instances can keep dropping so you need to exercise much discretion. Short-term oversold in a bullish market is a completely different setup, so make sure you’re aware of the difference. I’ll cover it in my next webinar meeting, so make sure you tune into that.
On that entire point, before the pre-market last Friday I tweeted that the S&P was likely to reverse upwards that day … which it duly did.
I followed up quickly to say you must protect your profits. If you did that, you’d have made a nice quick profit.
In this particular case we were not observing a particular stock, but the S&P 500 index and SPY ETF. In such a case, being dramatically oversold with a reversal signal was worth taking.
Again, I’ll cover this in our next webinar.
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Current Market Behavior:
The longer term slower market timer – my OVIsi – is settled in back in the Amber zone.
My medium term SPY Swing Timer is still slightly oversold, while the Short Term Timer displayed a strong green arrow on Tuesday, but in the context of a negative OVI which negates the signal.
As always, please do not simply follow the arrow signals blindly. Regular short term signals are prone to “noise”.
All the indices still remain below their 200-dmas and are oversold, but there is still room to the downside.
Market Outlook:
Earnings is over and the markets still have plenty of socio-economic and political challenges to absorb. Like the last few weeks, we are short term oversold with scope for more downside.
Stock Selection:
Like last week, a number of consolidations today, but not many nuggets. As ever, my focus has been to identify tight consolidations with corroborating OVI behavior and near Key Levels. As you’ll see today, there simply aren’t many of those right now.
Application:
This week I have focused my searches on consolidations near the Key Levels, but have added Big Money Footprint searches along with high OVI correlation searches. I haven’t gone for short squeezers or Implied Volatility Divergence setups today.
Software Upgrades
Big news! Very soon the “Toolkit” will be the only way you can access our applications. This will make things faster and more efficient.
Moving forward, all applications will be updated to a new look & feel, which will be completed in Q1 2023.
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Remember, you can play the video at 1.25x or 1.5x speed if you want to save time! I have placed all the stocks covered in today’s review in your “Latest Preview” watch list.