Wednesday, November 7, 2012

How Oversold Are We Really?

Just because we are down over 300 points on Dow Jones today or down to 1400 on SPX, DOES NOT MEAN THAT THIS IS A BUYING OPPORTUNITY.
Be very careful falling into the BUY EVERY BIG DIP mentality. Obviously, that all just depends on your timeframes as a trader and the time frame of your trades. Even for my short term nature, i am a little hesitant getting long right now. Yes, some stocks are very OVERSOLD and could bounce nicely for 1-2 days, but keep in mind, OVERSOLD can get even more OVERSOL ..... very quickly. Ask anyone who was bought AAPL recently because it looked "oversold". 
This entire week, My goal was to keep ART OF TRADING members out of trouble; Remained in a 100% cash stance for the entire week pretty much. 
It has helped many based on emails i received and stirred most out of harm's way. That's GREAT as that was the intention. 

Sometimes, in trading, its NOT how much money you make but how money you keep that matters most. If by standing aside you managed to avoid account damage then that's a big win and puts you in a mental and financial position to attack with more confidence when the time is appropriate. 

Look at the chart i attached . You will see that we are nowhere near "OVERSOLD" really. If this maket wants to, it can easily keep drifting down and selling off in the days/weeks to come. The downside risk is very real and it needs to be respected. Sure there will be PLAYABLE bounces(like yesterday's bounce) but let's keep in mind the bigger picture. 

Study the TRIN and SPX relationship in the attached charts. Study how SPX and TRIN behave during times of 'EXTREMES', watch how TRIN spikes up into EXTREMEs on days when SPX tanks and especially near climax bottoms where the selling really intensifies indicating CAPITULATION. 

 If you not sure what you are looking at or don't understand it. email me at, and i'll help explain it(maybe in a video). 

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