The Question Every Trader Want Answered: Are Stocks Short-Term Oversold Or Long-Term Overbought
As traders will, accurately, point out based on technicals stocks are significantly oversold on short-term time horizons, and are thus due for a rebound. Case in point JPM's Misla Matejka who said overnight that "we note that some of the tactical indicators we follow, such as Bull-Bear at -16, are in oversold territory. This argues for a bounce in the short term...”
However, as watchers of broken markets will likewise caution, on a long-term horizon markets are massively overbought, mostly courtesy of over 7 years of central bank intervention and record stock buybacks, interventions which may be coming to an end, bringing us to the second part of Matejka's assessment: "... but we believe that the key call here is to use any rebounds as selling
opportunities. Q4 results are unlikely to provide clarity."
So what is one to do?
One attempt at an answer comes from Mark Cudmore, a former FX trader who now writes for Bloomberg News:
Observe And Consider
Whether you’re bullish or bearish, the next couple of sessions are likely to be difficult to trade. There’s little risk-reward for those investors who have the option of standing aside to observe.
Longer-term investors will have noted the severe technical damage seen across the vast majority of markets and asset classes last week. And the negative headlines in weekend papers are likely to spur further retail outflows this week.
Shorter-term traders will feel that many moves have gone a long way very quickly and hence appear ripe for a brief rebound. The catalyst is that, in the height of a market panic, prices can become dislocated from fundamental valuations, as margin stops get triggered and “weaker” positions get cleaned out.
The counter-argument is that distortions caused by the extraordinary monetary policies of global central banks mean markets might have been disconnected from traditional fundamentals for several years.
Liquidity will remain at a premium. Both bulls and bears can struggle in risk-averse markets as the negative wealth impact results in deleveraging which, in turn, reduces participation. Spreads widen at the exact time that market- makers appetite for risk declines, making execution more expensive and messier.
This makes relative value trades much tougher to hold, further lowering the incentive to even try to arbitrage value across similar assets, even for those who remain agnostic on overall market direction.
Overnight price action in the South African rand provides a perfect example of what can go wrong. On Friday, the weakness appeared “stretched” -- with one technical indicator showing the currency at its most oversold in 14 years. Then the rand plunged another 9% in early Asian trading.
(4 votes)
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Personally I will only go long if S&P500 goes down to 1850-1880 for the rebound. And then afterwards go short if S&P passes above 2000.
Have standing sell order for VXX at 44. VXX bested 44 on Oct 15 and 16, 2014 when the S&P dropped to 1838 and 1820.
S&P in the mid 1800s is the only support left if we drop from here BUT the overnight lows hit support and a bounce is likely. If it does bounces it will be Fed fueled and will rip the face off anyone short. If the drop continues there will be panic. My crystal ball shows nothing though, possibly the charger port has dust in it. I hate it when that happens.
I have a take profit order in for VXX, at $4400...
My technical analysis, which I just pulled out of my ass, says S&P bounces this week, to about 2025.
And then resumes the cliff dive... sorry, no charts and lines and stuff.
You should have a "alternative" investment tv show.
Oh. Kramer already beat you too it.
Exactly. Boo-yah!
I still say Bullbearish, or Bearbullish
Akin to a circling ball on the roulette wheel...in a rigged casino
BullBearshit.
BearBullshit.
It all depends on whether or not the FED will throw another $11+Trillion of free money at Wall Street and go back to ZIRP or NIRP to punish the little people.
If history is a guide they will prop the casino at all costs; and start having Gold teeth pulled from the mouths of Pensioners.
I'm having my doubts if more QE will pump up equities any further like previous times.
QE won't do it but dumping money in to start yet another short squeeze might. For a couple weeks. My gut says they'll do it.
There is no such thing as over-sold or over-bought - that would imply that technicals or fundamentals matter. The only question is 'how are you positioned ahead of the next central bank intervention"?
Perhaps, but I noticed that people quit buying houses when Central Bank intervention inflated their prices to amounts people simply couldn't afford. People also started driving less when Central Bank intervention pushed the cost of gasoline to amounts people simply couldn't afford. Sooner or later, the Law of Supply and Demand, like the Law of Gravity, confronts everyone, even Central Bank interventionists. When Demand evaporates, prices fall.
in the long run I don't see how any non-cashflow generating (i.e. speculative) asset class isn't overbought (except pm which should be viewed as bail-in/nirp insurance more than investment) if for no other reason than demographics. we've got my parent's generation (baby boom/60s+) who are selling to my (x/40s) generation that still has incomes (re: free cashflow) to buy but eventually we will need to sell & who will be the buyers? a generation of $12/hr baristas w/$250k debt on their mfa(s) in literary deconstruction of gender fluidity? who are the buyers in 20 yrs? buybacks? tbtp banks? don't see how this ends well...
Who fucking cares..
RIP DAVID BOWIE
Theta_Burn, I clicked on RIP DAVID BOWIE, and the vote counts on your post went from 2 and -1 to 4 and -3. Weird.
You get +1 for first line, -1 for second line.
Re your second line... to quote you: "Who cares"
Wasn't ment to be a survey
The passing of a musical genius, I feel should get a mention, as much so as these stupid fucking charts that are signaling a possible over-sold state..
And I agree, thread jack is not cool, my apoligies
"The passing of a musical genius, I feel should get a mention"
Yeah. True genius though. I'm gonna have to fire up China Girl sometime today. So maybe not that far off topic. ;>
If this isn't the definition of overbought , then they need to throw away the dictionary
Use the 5 year charts.
The five year charts say we are sitting on support ready to bounce but insanely overbought long term... which is the point of the article.
Long - Term manipulated....
Although markets usually bounce when they are oversold on the short term, that's also when they crash. Long term, anyone who didn't hedge or go flat above 2100, especially after the August downdraft, has rocks for brains. Hedged now, wait for a rebound to go short. Forget calling tops and bottoms, that's for media talking heads and losers. Find a strategy that shoots for the meaty middle.
Today (or Friday PM) is and was the time for an options strangle or if you're a wimp use a straddle. No more than two weeks out. QQQ 110call + 100put. It will cross one of those lines this week.
Just for giggles I'm going to follow that remark. I don't trade options anymore, so you will be my thrill of victory - angony of defeat proxy.
if u don't mind. ;>
I agree. "Beware the hook", the short-term bounce in an investment which is naturally falling. A breeze may lift a falling leaf, but gravity is still the chief.
IMHO, the bounce began after hours Friday, continued at opening today ...
and that was it - DeadCatBounce one more time.
FTFB - Fade the Bounce /\
Wrong questions. We want to know how much the fed will tamper with the fake markets. Oversold or overbought? How about over-fraudulent?
Technical guessing is like predicting weather knowing only the temperature from yesterday.
They are in a Fed induced hyper-bubble, which will implode without central bank propping by about 50 to 80 percent from current prices.
IMO the fed will do little, as the dollar, and protecting it, is far more important.
Bowie, yep surprized and too bad.. music good st.uff
mrkts, dilusional and opinions.. meaningless commentary, poor entertainment. stick with thesis.
Well they were overbought for long periods over the last few years (argueably constantly overbought!) and that didn't stop them from going up forever. But sure, all the voices that have an interest in the being higher will say its oversold. Good luck buying here....
overbought by whom? the fed? the fed is buying time for their friends to escape while the muppets and pensions get looted
whom is Janet.... g'kar
remain calm, all is well
https://www.youtube.com/watch?v=zDAmPIq29ro
.... yes, and WAY YES
The whole concept of "equities" seems lost to me at the moment- particularly after reading about Chipotle shareholders suing themselves because they bought a stock- and omg!- it went down.
Like trained pigs- people buy stocks- thinking that there will always be another sucker who will spend more for their stock than they did. After inflation and taxes- I'm not sure any of this shit really goes up- it just takes more inflated fiat to buy it down the road.
It is the greatest Ponzi ever invented. Buy and hold and pray some other dipshit will pay more. Until they don't.
Peter Gibbons: The thing is, Bob, it's not that I'm lazy, it's that I just don't care.
I think I just saw QQQ spike in the premarket trading... something big is coming 16mins from now and it's probably going to hurt.
"The counter-argument is that distortions caused by the extraordinary monetary policies of global central banks mean markets might have been disconnected from traditional fundamentals for several years."
No shit.
They are priced in shit paper that is the problem
"markets" LOL!!! The question these fuckers should be asking is; "how will I feed myself when I actually have to WORK for a living again?"
Jump you fuckers!!!
I covered all my SPY short on Friday at the close. Have been doing this for 30+ years.
Short term trading has nothing to do with fundamentals and everything to do with rhythm.
"It ain't the meat, its the motion..."
The answer is YES.
Solution: GTFO NOW!
The market meltdown which I think is currently in progress will be something never before witnessed.
I think it will be much faster than anything imaginable wiping out trillions of investor dollars.
As seen in China, once confidence fades, there is nothing the central banksters can do to stop it.
To paraphrase:
"Stocks can stay oversold or overbought longer than you can stay solvent."
But here is a Trading 101 tip: Dont buy "oversold" in a downtrend; don't short "overbought" in an uptrend.
(mostly)
Having a good/bad morning here.
Good: I'm alive. All bills paid. Working on my own things, on my own time.
Bad: GF keeps trying to get me a job. I can do the job, no problemo, but don't want the job. Causing me undue stress.
How this relates to oversold/overvalued:
My work pays me for what I put into it. A job pays me when I show up and stay and do what OTHER PEOPLE want me to do. With stocks. If I don't play, they don't pay. Also, I cannot lose. I've played in the past and won, but, since 2009, mostly losses for small bets (yes, bets, not investments).
If I want to gamble with fiat, I'll play the horses. Quicker payoffs/losses and tax free. My conclusion is that short term, sure, oversold, but long term, overvalued. When it crashes to levels much lower than today's, and the Fed steps out of the way, and the banks are shut down, and mark-to-fantasy reverts to mark-to-market, I might play.
Same as a job. When the terms fit MY priorities, I might get one. Until then, I'll fend for myself: silver, seeds and crops grown on my own land.
For the last 40 years, every time my wife stresses me, we go relieve that stress. She still stresses and thankfully, I can still engage the stress reliever.
No. It's true. I go right to sleep, after. Stress, dissapated!