Stocks oversold, but does it matter?

Here are the last 20 trading days of the Dow in a 60-min chart.


Note the upward divergence in the bottom RSI, indicating that each downward movement since the 22nd has been weaker than the last. This can be an indication that the urgency to sell is waning. Perhaps it is all part of a corrective pattern within a downtrend that has set us up for another fast plunge, but it would also be expected if were about to rally strongly and correct the whole drop from 10,700.

At any rate, as of Friday’s close we were oversold and due for at least a minor rally. I had loosened my hedges earlier Friday, but I tightened them after the close and more on Sunday evening.

Here is the VIX, in a 60-day, 60-min chart. I think last week’s oscillation pattern could be somewhat troubling for the bulls, as it looks corrective:


It reminds me that during the breakdown in spring 1930 there were no major countertrend rallies until the Dow had taken a swan dive, culminating in large gap-down day. Maybe this week brings such a move to thoroughly shatter the bulls’ complacency about this being a mere speedbump on the way to the 2007 highs.

Here’s summer ’29 to summer ’30:


Here’s an update on copper, last trading at $3.05, off 50 cents from its highs. It has no business being anywhere near the 2007-2008 levels in this economy, as those levels were never sustainable anyway:


It is still not oversold after this plunge, and I suspect that the retracement back towards the $1.50 area will be blindingly quick. I could put up a bunch more base metal charts that look just like this.

The best performing commodity of the past 12 months is probably sugar, which clocked a new 30-year high last week:


I’m short, and I like the negative divergence in daily RSI, as well as the fairly clear wave count (5 of ‘em, with a contracting triangle 4th wave this autumn indicating that this spike should mark the end).

Cocoa also set a 25 or 30 year high recently, and it’s historical pattern is similar to sugar’s. It’s another pet short of mine, and I like that the latest attempt at a new high has failed and that the uptrend is now broken:


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3 thoughts on “Stocks oversold, but does it matter?

  1. I’m also short cocoa and sugar. Missed the turn on copper and the grains. And what about lean hogs — getting slaughtered today!

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