Mean reversion methods indicate bounce likely | stockbee

10/24/2012

Mean reversion methods indicate bounce likely

he market gapped down yesterday but did not follow through to downside during the day. In fact the Nasdaq managed to recover some of the gains.

Breadth was not overwhelmingly negative. As of now this continues to be slow grinding correction.

But the setups on individual stocks clearly show significant damage. Everyday more stocks are breaking down.

The individual one day moves dominated by earnings continue, but there has been no follow through on most earnings breakouts.

The overall picture looks like this correction will require  more time and more selling to play out. In the meanwhile after 3 to 4 days of negative action a bounce is likely outcome. 



The RSI 2 kind of mean reversion methods are in extreme territory on indexes, indicating a high probability of short term bounce exspecially on Nasdaq and small caps.

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