After five down days in a row, its easy to say the market is oversold. Several indicators can be used to gauge how quickly the markets became oversold including Worden’s McClellan Oscillator which stands at -400 and T2108 which has plummeted to 21%. However, one easy indicator pointing to a bounce is just watching the results of my screens. I have a couple of scans that typically return about 150 stocks setting up for a trade and today they returned 3. That’s right, 3. I have another scan that returns strong stocks in an uptrend that typically returns 600-800 stocks. Today it returned 160.

This doesn’t mean a bottom is in or that the markets are done correcting, in fact, there could be more downside ahead. However, I think we are very close to a strong bounce that will be tradeable. Metals and mining were showing some strength today and could see a rotation soon. Transports and Oil stocks have been lagging and I wouldn’t be surprised if they led the way lower if the correction continued through the early summer. The easy money was made in the first quarter, so don’t get too comfortable here. Wait to see how the markets deal with their first correction in months. There will be opportunities for patient traders, whether on the short side or long side.

Good Trading,

Joey