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After the Selloff

After Friday’s large selloff in the equity markets, I decided to take a look at the daily and weekly charts this weekend.  They definitely reveal some interesting clues about what I think could occur over the next couple of days.  After Friday’s news about Goldman Sachs it’s easy to flip our mentality and now become scared and even bearish regarding the markets.  However, my  daily charts paint a different picture.  First, Williams Percent R actually generated a buy signal based on the closing of Friday.  Also, you’ll see on the chart although we did dip below the most recent trendline, we did not close below it.

Now the weekly chart.  Here, we do see a little more of a mixed picture.  On one hand you’ll see we are only in the middle of the current channel.  This means we wouldn’t technically be overbought until the 1300 area.  On the other hand, we did make a doji for the closing week which could be bearish.  Also, volume (not on the chart) has been low recently during our continued rally.  When volume finally came in on Friday, it was for a sell-off.

The final area for concern about a possible top is the recent low put in on the Equity Put/Call ratio.  This is usually used as a contrarian indicator.  According to SentimentTrader, right now we are seeing the lowest level of Put buying since 1/16/2004 (low level of fear in the markets, complacency).

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