Oversold conditions spark a sharp recovery as shorts covered their positions

We’ve seen this story more than once, a sharp massive recovery after setting new lows.  The huge % gain on the day came on volume but it wasn’t accumulation from insititutional investors.  Big boys do not like to run up the price on themselves and chasing anything beyond 1-2% beyond their buying levels.  Stocks are simply oversold, not as oversold as they were on 10/10 but nonetheless oversold.  Look for the market to have a relief rally heading into this holiday week and volume to be on the lighter side.  Any longs remain suspect and your losses should be cut short.  Keep a tight leash on everything and do not let losses run wildly.

This market has a ways to go, I am looking for the S&P500 to finally end up around 400-500 and the NASDAQ to find its bottom between 800-1000.  In the coming days I will review each index and the history of P/E contraction during economic recession.  Remember, human emotion will always overreact to certain conditions within the market.  Our best defense:  CUTTING LOSSES.

These are interesting times, you should use this rally to setup new short positions no matter what kind of Bargain is out there.

Enjoy,

MS

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