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S&P 500: Bounces from Oversold, but Is It for Real?

S&P 500: Bounces from Oversold, but Is It for Real?

Paul Robinson,

What’s inside:

  • The S&P 500 bounces from extreme oversold conditions
  • Price behavior still not giving a strong indication one way or another just yet
  • A little more time should bring clarity to the situation

On Wednesday, we noted the extreme short-term oversold conditions present in the S&P 500, suggesting a trade-able low was close at hand. From a price action standpoint we were looking for more, though; confirmation that oversold wasn’t going to become more oversold.

Excerpt from Wednesday: “It’s possible we have already found support at the 6/8 peak, but price action is still weak enough at this time it looks as though another leg lower could develop into the trend-line first before seeing a tradeable low.”

The way the market gravitated back lower towards the Monday low appeared to have the makings of a break, but it wasn’t to be. The S&P found support and launched higher yesterday, with the Nasdaq clearly leading the way, nearly trading to new record highs. One of the largest Nasdaq 100 constituents has been an absolute beast – Apple (AAPL) – trading from 102s to 115s in the past four days.

Where does that leave us today? Not in a much better spot for determining market direction with confidence. The market is off the lows, but still poorly postured with another possible lower high in the works (most visible on the intra-day time-frame). But there is also a higher low, too. The lower high, higher low could further contract towards a wedge, which would be inviting as it will likely lead to a tradeable breakout at some point. Still sitting in the one more leg lower camp at this time, but not willing to go too far out on a limb with this bias just yet.

So for now we will continue to leave trades short in duration, playing intra-day trends/price levels. But soon, with a little more clarification, we should find ourselves with something worthy of sinking our teeth into for a trade with a time horizon beyond a few hours.

Follow trader sentiment in real-time via the SSI indicator.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinonFX.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.