These markets are very oversold at this point. The S&P 500 Index has declined lower by nearly 7.0 percent since the May 2011 high. At this time, this appears to be just a normal correction, however, all of the problems that caused this decline still persist and this is a reason for caution. Traders and investors will continue to focus on all the problems in Europe, Asia, and the United States as long as the major stock indexes remain weak. Many investors believe that the Federal Reserve(U.S. Central bank) is out of ammunition for the near term and cannot reload new stimulus until the markets stage a true correction. We shall see soon enough as the chatter of QE-3 is being talked about by every investors at this time.
Should the major stock indexes rally today it looks to be just an oversold bounce. It is always very important to see a secondary higher close, or what we would call a follow through day. Traders should watch the leading stocks for clues to see if the markets can stage a multi-day bounce. Some of these market leading stocks include Apple Inc.(NASDAQ:AAPL), Netflix Inc.(NASDAQ:NFLX), Exxon Mobil Corp.(NYSE:X), and J.P. Morgan Chase & Co.(NYSE:JPM). When these stocks do well it is a good sign that the major stock indexes will also do well. It is simply a game of follow the leader. Lets see if this market can finish the day in the green by the close before we say this market has found a near term low. Remember, one day does not make a trend.