Wall Street Craps – 2012 Global Ebook Finance Award-Winner

The stock market turned down sharply on Friday and is now heading towards a possible bounce around the SPY 89-day moving average at 448. With the negative news build-up over the long weekend, we could easily have a panic crash on Monday. In any case, a sharp short bounce worth trading to the upside can be expected early next week. But what happens over the intermediate term is anyone’s guess. Another problem is the widespread expectation of a Santa Claus Rally which may be a dangerous assumption. You need to remember the alternative case of December 2018.

Key underlying short-term timing indicators show the following:

• NYSE McClellan Oscillator – Ultimate Indicator – 18 (oversold)
• Nasdaq McClellan Oscillator – Ultimate Indicator – 21 (oversold)
• Volatility Indicator – Ultimate Indicator – 18 (oversold)
• NYSE Advance/Decline Oscillator – Ultimate Indicator – 13 (oversold)

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NYSE McClellan Summation Index: This indicator has broken down and is one trading day away from a possible “oversold” condition. In the past, this indicator has shown the ability to stay oversold for many days, but recently the bottom of the market has occurred shortly after entering this oversold territory. So be ready to move soon if you’re willing to risk playing the trading game.

Fear/Greed Index: This popular indicator is in the “Fear” territory after having been in the “Greed” area for some time. Friday’s sharp down took this indicator down quickly from a reading of 64 to 31 which is the largest one-day drop that I can ever recall. One or two more negative days and this indicator will be in the “Extreme Fear” range which is a precondition for a bottom.

The stock market has been correcting and chewing up time since its recent move to all-time highs. In the meantime, three of the short-term oscillators have flashed “oversold” readings suggesting that a short-term bottom is here now. This may be setting the market up for one last rally into December before any major correction occurs. You could start taking positions on any weakness during the next few days or sell any remaining positions into strength as the market continues to climb the proverbial “wall of worry.”

Key underlying short-term timing indicators show the following:

• NYSE McClellan Oscillator – Ultimate Indicator – 16 (oversold)
• Nasdaq McClellan Oscillator – Ultimate Indicator – 21 (oversold)
• Volatility Indicator – Ultimate Indicator – 52 (neutral)
• NYSE Advance/Decline Oscillator – Ultimate Indicator – 27 (oversold)

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NYSE McClellan Summation Index: This indicator has been clustering in the overbought range, but is now breaking down and headed across its Ultimate Indicator oscillator’s range towards the “oversold” area. According to the history of this indicator, it will need some clustering at a lower level before a sustainable rally can happen. What I’d expect instead would be a short, sharp rally to new all-time highs in December, but not one of duration.

Fear/Greed Index: This popular indicator is in the “Greed” territory after having been in the “Extreme Greed” area for some time.. One has to be very careful about taking long positions at this time even though the short-term oscillators are “oversold.” Bottoms usually don’t occur unless this indicator has a reading of 25 or less (Extreme Fear).