For Whom The Deep Oversold Bell Tolls (again)
Musing on the Markets

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Beyond The Sound Bite

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Have You Seen This?

Have You Seen This?

Whatever the fundamental rationale may be – November 15th and hedge fund redemptions; capital gains sales in anticipation of tax increases next year; fears of a global recession; concerns re FAS 140 and QSPEs (more on this one in a future posting); S&P 500 earnings closer to $50 with a 10 or less P/E – the technicals of the market are once again on the verge of signaling another strong non-confirmation low. 

As the accompanying chart shows, the deep oversold in Slow Stochastics (below 20) combined with a vastly improved Momentum and MACD readings point to a bell ringing non-confirmation low. In my experience, when combined in this fashion these indicators have a > 80% probability of success. And when they fail, the worst-case result is breakeven. 

Investment Strategy Implications

Will this time be different? Perhaps, but only the nightmare scenario of plunging earnings and deflationary level P/Es justify lower prices.

Posted 11-12-2008 1:40 PM by Vinny Catalano, CFA
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