Oversold?

I see a lot of conversation in the press, and across social media using the term oversold.  While that might be true, oversold does not automatically translate into bullishness or a reason to rush into risk!  Take a close look at the daily charts, and you will see there is currently nothing in the price action that should engender confidence that the bulls are ready to take control.  Remember the fear of missing out is an emotion and not a valid reason to buy!

If you do in fact, set aside bias and speculation it’s not hard to see that the price action could easily point to another leg lower.  My point is to avoid gambling on the rumor mill and wait for proof in the price action that the bulls are supporting price before risking your hard earned capital.  Also, keep in mind that with the VIX still showing considerable fear and nearly 1200 earnings reports this week volatility will likely produce overnight reversals and nasty intraday whipsaws.  Plan your risk carefully!

On the Calendar

The Economic Calendar is off to a quick start this week with the potential market-moving Personal Income and Outlays report at 8:30 AM Eastern.  According to consensus estimates, personal income and consumer spending increased 0.4% in September.  The core PCE which excludes food and energy expects a subdued 0.1 percent monthly increase with a year-on-year gain of 1.9 percent. After that, we have a Fed Speaker @ 9:45 AM, the Dallas Fed Mfg. Survey @ 10:30, and 4-Bond Events between 11:00 and 11:30 AM to close the calendar day.

We have a very busy week on the Earnings Calendar with this Monday off to a fast start with 140 companies reporting.  Some of the more notable are for today are AMG, BAH, BLMN, CDAY, CTB, DAN, FDC, OIS, PCH, RAMP, SIR, TSEM, YNDX

Action Plan

Expect volatility to remain high this week with nearly 1200 companies reporting earnings.  Fear is also a factor the market will have to continue to deal with VIX holding above 24 by the Friday Close.  Internally the market appears to be in an extreme oversold condition, but with such high volatility, traders will likely find the price action very challenging.  Overnight market reversals, intraday whipsaws and very fast price action to common in this market condition so plan your risk very carefully.

Technically the major indexes managed to hold important support levels on Friday, but the but the overall price action was not exactly confidence building.  Although I’m hoping for a relief rally from this oversold condition, I’m not ruling out the possibility of another leg down in earning continue to disappoint.  An oversold condition does not an indication of bullishness and to assume such is gambling on wild speculation.  Wait for a price action proof that the bulls are supporting price if you decide to trade and have a willingness to hold through nasty price whips.

Trade Wisely,

Doug