Weekends are for resetting our biases.
In that spirit,
here are some reasons the market may be short-term oversold - reasons
to take a hard look at any short positions you have come Monday morning:
1. 2-day RSI levels:
Dow at 0.090, SPX at 0.81, RUT at 0.90; NDX is the only index with RSI
room to fall, at 9.61. But that (relatively) higher number is really
just due to continued tech leadership. Some members were asking last
week why we use the 2-day RSI rather than the traditional 14-day
setting. The reason is that the 2-day gives you a more dynamic reading,
and makes it into more of a leading (rather than lagging) indicator. In
short: the 2-day is good for giving contrarian signals
(overbought/oversold), while the 14-day is good for giving momentum
confirmation signals.
2. VIX mean reversion
- the CBOE Volatility Index tracks the volatility of options on the
SPX, for those of you living under a rock. Like anything else in the
universe, it tends to revert to the mean, and at the current reading of
22.96, it is well above its 10, 50, and 200 day moving averages. (And
its 2-day RSI is at 96.10, if you care.)
3.
Earnings - Lots of big names reporting next week...
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