I meant to post about this last night but just ran out of time due to me being sick all day, but the T2108 indicator from Worden went down to 8% yesterday – a very good sign for a bounce. For those that don’t know anything about this indicator, it is a calculation of the percent of stocks above a 40-day moving average.
- Dave over at TheTradingDigest has been talking about this for a while and has a simple system you can follow once it gets below 15 – definitely a very interesting system.
- Rob over at Quantifiableedges has talked about the T2108 in the past and today had an excellent post on the T2116 which looks at stocks making 2 standard deviations below a 40-day moving average – basically it shows extremes in selloffs. Btw, if you’re not getting his newsletter you’re really missing out (I have no affliation with Rob other than we are both Celtics fans and write blogs about the market).
Bottom line is that just about every indicator was showing the market extremely oversold. I was already long going into today as the everything has been oversold for quite a while – more than 5 days – so I was just hoping that we’d see a reversal. That we did – and a pretty good one. Now, the question is what happens from here – I would expect:
- Up a bit more tomorrow with the exception of those equities that shot off like a rocket.
- Some retracement over the next few days.
- After the retracement, a move higher.
Obviously this may not play out – but on a probability-basis, this has historically had an 80-100% chance of working. So that’s what I’m going to play.
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