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Using Sentiment To Help I.D. Over Sold Markets

|Includes:SPDR S&P 500 Trust ETF (SPY)

Over the past two weeks the U.S. domestic markets have been getting pummeled by across the board selling and falling sentiment. During extended sell offs, like the one we are experiencing, it is important to understand "The Bounce" that typically occurs when a market gets over sold. In its simplest form this is buying that happens because a market has fallen "to far to fast". These bounces can be good opportunities for educated traders and investors if they are able to identify the timing of when a market will "bounce" or correct.

The above image shows our Sentiment chart of the S&P500 over this period. From Nov. 7th until Nov. 13th we were in a negative and falling period for sentiment, but starting on the 14th the average weekly sentiment started climbing again. This was a strong indication that the atmosphere surrounding the S&P500 was starting to stabilize. As a result we saw the market put in a near term low and begin to move upward again.

This concept of "The Bounce" was covered by Jim Cramer last Friday regarding the positive move in Apple. He does a good job in explaining this concept and further confirms our previous post regarding AAPL's current price. See the Video

Disclosure: I am long SPY.

Stocks: SPY