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Bouncing from Oversold Conditions Stocks End Higher

It was about time as stocks closed higher after heavy selling plagued the market last week. Today was not a surprise as the market was in extreme oversold conditions where an obvious bounce was near. Advanced retail sales helped boost buyers as sales did not drop as much as expected. Although still falling, retail sales did not drop -.5% as expected. This coupled with another hike in capital requirements in China helped boost stocks. Stocks moved higher throughout the day, but one large negative hit the market. The run rate of volume fell throughout the day as stocks rose giving the hint big institutional investors were on the sidelines not involved in the buying. Volume is a key ingredient in our assessment of the market and today showed we got nothing more than an oversold bounce. At the end of the day stocks fell off their highs of the session leaving one more blemish on the day’s action.

The 200 day moving average has provided a support area for the NASDAQ here. It would have been better if volume surged here to show big institutions were stepping up supporting the market. We simply do not have this support, perhaps tomorrow we’ll see institutions step back in, but we can only examine what the market has given us. Speculating on what MAY happen is simply dangerous to your stock market trading. If we had a robust rally with volume surging I would be singing a different tune. Until such a time where we get our ducks in a row we’ll be looking for better short setups.

Corrections are apart of the stock market and there isn’t much we can control except for our actions. Avoiding corrections and the nasty declines that can occur in your account is of the utmost importance in stock market trading. Keeping your powder dry during corrections will allow you to jump on fresh new bull runs like the one we saw last September. Shorts are tough; they require you to be real quick with profits and losses. If you haven’t made money on the long side of the market avoid trying to short the market. We do feel we have the opportunity to see shorts here after this market is done relieving the oversold conditions.

We could see the market rally back up to the 50 day moving average. A very logical spot for the market to bounce to, is the 50 day moving average, but beware it is a logical spot for sellers to step up their operation. Sit tight, be patient and let this market come to you and NEVER chase a stock. Cut your losses, it is your insurance policy for your portfolio!