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Home » Blog » 2012 » 05 » Oversold Market Due for a Rally
By Lawrence G. McMillan

Following an overnight push to new lows, the market attempted to put together a rally into the 2pm EST Fed minutes.  However, the market stalled and was unable to hold above the $SPX 1340, support-turned-resistance level.  The bears have once again taken control of this market pushing it down to Tuesday’s lows.  In the short-term, the market is very oversold and is due for a short-lived rally.  If the bulls can somehow hold Tuesday’s low, I expect we will see a strong wave of short covering come into the market.

Both the equity-only put-call ratios are holding their sell signals.  Today's price action will likely push the weighted put-call ratio into oversold territory.  This is not a buy signal, but simply means the indicator is nearing a more significant level, if it can roll over.  The total put-call ratio is definitely oversold as its 21-day moving average is above 0.90.  When these put-call ratios trigger their buy signals, they will point to a significant rally in the market...

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