Sunday, June 12, 2011

Oversold Gets More Oversold

Clearly Thursday's bounce attempt failed, but I think we are very close to a rally that will last a couple of weeks.  The McClellan Oscillator has fallen to an even more oversold level as of Friday.  While the monthly trend remains in a clear uptrend on most indexes, the price on the daily charts is at or near the 200demas, which are rising.  A MACD buy signal off of the rising 200dema would be a valid buy signal.

The problem, however, is that the depth of the correction has made the triangle a less likely outcome for this correction.  At the moment a number of possibilities come to mind, but a flat correction appears to be the most likely.  Failing that we may be looking at some sort of extended combination that is far from complete.

ONLY if we see a completed 5 wave decline followed by a 3 wave rally might we consider the possibility of a more severe correction or even a resumption of the bear market, but we are a long way from that point presently.  Even if we do have such a setup it could still be a combination (flat-3-zz or flat-3-triangle, e.g.).

This market remains as tricky as ever, but I am encouraged by the increasing bearishness.

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