The most important consideration in determining market direction is price action. It's not indicators that measure overbought or oversold. That said there and interesting oversold pattern in the 3-day RSI and the McClellan Oscillator. It is not a typical pattern I discuss and a full explanation is beyond the scope of an evening update, but I'll summarize it like this...
The markets got to a very oversold level in late November, and the bounced dramatically. Now the oversold readings of both the 3-day RSI and the McClellan Oscillator have reached levels that we would look for a bounce in the market if we were in a bullish mode. We're not in a bullish mode, but very often this first pullback to a moderately oversold level is a set up for a rally.
IMPORTANT - In order for a rally to begin the price action must turn bullish! I know that sounds obvious, but too many traders will ready what I just wrote and think I sad it's time to buy regardless of what the market does - WRONG.
The price action also has a very interesting pattern which is most clearly visible in the SPY and DIA. The Q's and IWM do not have it as pronounced, but the market action is similar. I'm referring to the fact that in the last 5 days, and 6 of the last 7 days, the SPY and DIA have closed lower than they opened. This pattern in easily seen in the candle charts. The significance is the fact of 5 days in a row. Look back at how often the SPY has demonstrated this pattern. You won't find it very often and it is an indication of a market that needs a rally even if the eventual direction is down.
MOST IMPORTANT. 3 of the 4 market watch charts (SPY, DIA, QQQ) are coiled like a spring with 3 days of consolidation. The fourth, IWM, has either started to bounce or is putting in a very nice bearish flag. As a result, the 3-day range in the consolidating indexes and Friday's range in the Q's is the most important consideration for this week's market direction.
As a result of the markets 3 day consolidation pattern, a break down from the range is very bearish. A break up could indicate that the oversold condition is resolving itself to the upside.
Furthermore, the fact that patterns described so far are occurring right at the 50-day moving averages in 3 of the 4 market watch charts (QQQ being the exclusion) creates the potential for the move between now and year end to be a significant one!
First targets for a move up or down over the next week or two would be the November highs and lows.
While we'll take trades from the long and the short side, the market condition relative to this range will have a huge impact on my bullish or bearish bias.
Longs:
You'll find the stocks on the long list fall into two categories - daily charts that have out-performed over the last several weeks, and daily charts at significant support. This is because a market rally, should it come, could favor only one of these conditions. So beware, and prepared.
TLT: Should be a focus if stock indexes are weak. Friday broke resistance line from Oct. highs. 123.05 is important high to watch for, after that 124 could come quickly. Worth considering on strength or on an O.R. reversal over S1 of 120.41. Day to Mini
GOOG: Daily consolidation could push it big up or down but the trend is up. Pivots transitioned to positive, so worth considering on an O.R. breakout or as an O.R. Reversal over S1, 621.70 which sits right above Friday's low, 621.47, and the 3-day pivot low of 620.91. Day to Swing
HD: Strong volume and price action, but up against high of the move. Good O.R. Reversals candidate over S1, 39.93. Day to Mini
XRT: Sitting on multiple support levels including the 50 and 200-day moving. Pivots are positive but I prefer to avoid it unless it's over the FTP of 51. 60 with a risk under the swing low at 50.77. Mini
CELG: Seems to be held back by the 50-day MA which is equal to Friday's high of 64.02. Volume picked up in the 30 minutes on Friday and the last half hour low will line up with Monday's FTP of 63.53. If the intra-day set up can push it through the 50 day MA and Friday's high it could run to 66 quickly and the 68. Day to Swing
FTI: Bouncing off the 50-day MA and closed over Friday's high. 50.27 could be significant resistance. With positive pivots, 48.50 is S1 and good support (risk). Day to Swing
NBL: Sitting right on the 50 and 200-day MA, and above the Nov. lows. Positive pivots with S1 at Friday's lows, 89.08 makes for a good risk for an O.R. reversal. Day to Mini
X: Daily appears to basing out and it has now retraced back to a positively sloped 50-day for the first time. Pivots are positively stacked but I'd prefer to only consider longs over FTP, 25.78.Day to Swing
IMAX: Daily is basing and Friday bounced off the 50-day with good volume and a strong close over the prior day's high. S1 is 19.44, but good support is high - 19.68. For breakouts watch out for resistance at Friday's highs 20.38. Day to Mini
Honerable Mention:
GRMN: Good momentum and support at S1, 37.51, which lines up with Thursday's high, 37.66.
HCP: Weak market seems to be holding HCP back. 38.69 is key low. Prefer to be long over the FTP, 39.23.
YUM: 4 days inside a big day on 12/12 and sitting on the 10-day MA. Pivots turned positive, but key level is Friday's high of 58.15. Key risk level is Fridays' low 57.48 to 57.39.
Shorts:
AGU: Flagging below November lows. Pivots are positively stacked s o we need to wait for a shift in momentum to negative. Only probe short below the FTP, 65.35, and S1 which lines up with Friday's low. Day to Mini
NTAP: Momentum is down, and there is still room to sell an O.R. Breakdown. Rallies to FTP, 36.15, or R1 at 36.69 would be good places to look for a reversal. Day to Mini
CF: Inside day on Friday and has consolidated for 3 days. Its' only a short If it breaks Fridays' and Wednesday low at 129.38. Day to Mini
GS: There is a big daily wedge and the market is stretching to the lower support line but in a weak market GS could be susceptible to a big break. On strength R1 lines up with key resistance around 92.50 for a good OR Reversal. Day
WBC: Flagging at the Nov. Lows. Pivots are positive so focus on OR breakdowns below the FTP (half a position) and S1 at 40 witch lines up with the Thursday's low of the day. Day to Mini
FLR: Maybe a little over sold but the consolidation of the last 3 day's could push it lower and through the September lows at 47.87 and the next target could be 44.R1 is 49.05 and the 3 day high is 49.69 so a OR reversal in the 49 level. Day to Mini