The short term oversold condition mentioned yesterday after
the close seems to be taking hold this morning.
Europe is currently strong with most indices up 1% - 2%, while S&P
futures are up 10 handles pre-opening. Given the underperformance of small caps
during the recent selloff, I would expect short term money to flow into those
stocks this morning and for the remainder of this bounce, whether it lasts 2
days or a week.
2 things to keep a close eye on are volume and retracement
levels. During this bounce, if volume is not robust or is concentrated in a
narrow field of stocks, then that would be a warning that the bounce wont last.
The other thing to watch is how far up the ladder (how much of a retracement)
the indices push. The first test for the
broad market will be the 50day moving average which was a strong inflection
point in the futures on the way down yesterday. The next areas of interest will
be the 10day and 20day sma's up near 1389-1394. If the index bounces up there
and volume is waning that would be a big warning sign that the bounce is coming
to an end. Also, stocks recently mentioned here as looking dangerous to the
downside would be on my radar with any weak volume bounce.
Just a few things to keep an eye on in what looks to be a
volatile day ahead.
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