The Overbought/Oversold Ratio (a Wall St. “classic”
indicator based on breadth), my own Smart Money Index and RSI were all oversold
Wednesday. Further, Wednesday was a statistically significant day and that means
that the price-volume move down exceeded my statistical parameters and, in
about 60% of the time, that leads to an up-day the next day (Thursday). Wednesday, volume was nearly as high as it was at the 25
August low, so investors were showing considerable fear.
Bottom line: The most likely direction of the market is
up for the short term. If I see weakness
followed by a reversal Thursday, or a strong move to the upside, it may be an
opportunity to go long for a short trade for one to three days in the trading
portfolio. I’ll use 2x ETFs such as QLD
or SSO. This high risk stuff so if the
trade goes against me, I’ll sell early to get out with no more than a 1% loss.
