Headed Toward Oversold, Believe It or Not

 | Feb 22, 2012 | 7:30 AM EST
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I want to show you a string of numbers next to some dates and give you a few minutes to consider what they might be. Since I don't want to shock anyone, let me warn you in advance: You will see an awful lot of red, which I realize is something we're not used to seeing on our screens lately.

RUT Daily Change

Any guesses what that might be? It is the daily net change in the Russell's closing price since the employment number on Friday, Feb. 3. In the 11 trading days since then, the Russell has been red on eight of them. Yes, we're all still looking for the elusive 1% down day, but how many of you realized how red the Russell has been since that great employment number?

And what do all those red numbers amount to? Not even a 1% decline, even with all those down days.

A negative day on the Russell tends to bring a negative day on the advance/decline line, and a long string of negative readings on the advance/decline line leads to a short-term oversold condition. I was asked how it can be that we are heading toward an oversold reading when the S&P 500 doesn't even go down. Folks, the string of numbers above tells you the index (S&P) might not go down but individual stocks have managed to turn red on any given day.

So when you see the Oscillator ticking down in the coming days, you should now understand that those numbers tell us the typical stock has either gone sideways or down in the past two weeks. This is why I say we will be back to a short-term oversold reading toward the end of the month.

NYSE OscillatorNasdaq Oscillator

In the meantime I see the talk of the day was oil and the transports. It is hard for me to imagine how anyone would think high oil could be good for the trannies, but perhaps now everyone knows what has been ailing the beleaguered transports? The Dow Jones Transportation Average finds itself smack at the same support it was at last week. At the time I noted that spike lows tend to hold the first time down -- it did, as you can see -- but the second trip down is a roll of the dice.

Dow Jones Transportation Average

This time around the 50-day moving average has moved up to the support as well, so if we break this 5140 area we essentially do two things wrong break previous lows and a moving average line. I suspect if we see such a break it will be the talk of the town, and the trannies will find support at that green line around 5070.


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