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Rare Extreme Oversold Indicators Triggered

By Lawrence G. McMillan

The market’s still-overbought condition, coupled with some negative news regarding financial problems in Italy, resulted in a severe down day yesterday – a true “90% down day,” as it turned out.  A late-day rally seemed to ease things a bit, but overnight the situation has been exacerbated, and S&P futures are down another 6 points in Globex trading (they were actually down 23 at one point, but positive inflation news out of England brought the markets back a great deal).

The selling has been so severe (and apparently still will be this morning) that some extreme oversold conditions are already appearing.  For example, a 90% day is rare, and that is a short-term oversold condition.  Additional, the Arms Index (TRIN) yesterday was over 5!  That is extremely rare and usually indicates a selling climax.  There are others, but you get the idea.  The question that is foremost, though, is if this is something truly serious and trend-changing, or was it more a case of everyone trying to squeeze out the door at once to nail down some profits from the recent, strong rally...  

This Market Commentary was excerpted from this morning's Daily Volume Alerts newsletter.  To read the rest of the commentary, sign up now.

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