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Market Has Changed From Oversold to Overbought

s&p 500 12 oct 2011

I hope my chart above can explain clearly (click on the chart for a bigger view). Seems like the rally is losing steam and price will drop soon. DJI roughly has the same kind of chart pattern as well.

Just last week, the market was seriously very oversold. Now it’s the reverse, becoming very overbought. I did some check, a lot of US counters are showing signs of weakness (based on my own analysis).

STI had became overbought too. Most likely will have a retrace soon.

In addition, the companies’ quarterly reports will be out soon. People will react based on fundamentals (profits/losses). Market most likely will be volatile again.

I Went In And Got It Wrong

kimco 5 oct 2011

I was talking about Kimco Realty (KIM) a few posts ago. I mentioned that I entered a short position. You can read the post over here.

It was a trade that really went my way – the drop in price was big and I made decent profits. The swing trade lasted 5 days for me. The market was actually very very OVERSOLD already. I am expecting a rebound anytime.

Then 2 days ago (4 Oct), the market rebounded very fiercely in the last 20 minutes. I thought that was no hope for S&P already initially, it looked like it was going to break the crucial support and officially in bear market. The bulls fought back, all done in the last 20 minutes! I bet a lot of people’s stop loss will be hit by the sudden surge.

As you can see from the chart above, Kimco actually went from a huge bearish engulfing to a white candle stick in the last 20 minutes as well. Sensing the market will rebound, I entered a long position. It was still a small hammer when I went in.

However yesterday Kimco actually dived (see the last candle in the chart above) while a lot of counters was actually up yesterday! It hit my stop loss and I was out of the trade. At the end of the day, it formed a hammer again! Well, I got the timing wrong. I should wait for the confirmation before I enter a position. 2 hammers in a row… this counter should go up today. But the upside is not that good. The 20d MA is near to act as brick wall. Not worth to risk it.

spx 5 oct 2011

Anyway, I long S&P 500 index (SPX). The chart above is self explanatory. As I mentioned earlier, the market is very oversold and there will be a rebound. The market rebounded on the 4 Oct during the last 20 min and I went in. It was a small hammer when I entered. Became a big white candle when the day closed.

Those who long should be careful too. We are still against the trend. Set a tight stop loss, be quick to exit and take the profits.