The oversold buy signal is a short term reversal signal, allowing swing traders to establish a low risk entry point for trades lasting days to weeks or for trend traders to add capital to previously established trending positions.
Requirements for an Oversold Buy Signal
Typical Buy Candidate
We'll publish results TOMORROW
In this week's video, we cover market conditions and place an order on Steel Dynamics triggered by a Chaikin Relative Strength Buy Signal. The order filled at the open: BOT +400 STLD @24.46
Last Friday's price action looked pretty dire. A follow through to the downside would have completed a head and shoulders top of the intermediate trend. But there were a couple of clues on the Chaikin Analytics Platform that suggested it wasn't time for "look out below". First, take look at Money Flow on the SPY as of last Friday's close.
The preponderance of green is a possible clue that institutions have been using the pullback to accumulate stock. Our next clue lies in the Power Bars
The ratio of bullish to bearish stocks in the SPY, along with the number of sectors which have mildly to strongly bullish ratios suggest to me that we could see another run up to 2100. Since the Power Gauge is 85% fundamentally weighted, Power Bars can serve as a warning sign if the breadth of bullish fundamentals start to narrow. Now, the ratio is not nearly as strong as it was during the rally of the February bottom and economic indicators, such as jobless claims, will be watched very closely. We'll need a stream of good data to bust through overhead resistance. But, with today's market bounce, I will be looking for Very Bullish stocks in the strongest industry groups to replace portfolio positions that have stopped out in the last 3 weeks.
Today, an oversold market bounced after a 2 week intermediate term pullback into strong Money Flow. The market's bullish Power Bar ratio and upward sloping long term (orange) Chaikin trendline make market conditions for me acceptable to consider entering intermediate term bullish trades. XLI (Industrials) has been outperforming the SPY on a 3 and 6 month basis, and it's strongest industry group Aerospace is the second highest rated Power Bar ratio.
Within the Aerospace group, uptrending and Very Bullish DGI pulled back to the midpoint of its price channel over the previous 6 trading days and bounced today. With the market (relative strength) agreeing with Power Gauge, Money Flow persistently green over the last few months, despite some recent weakness, and the OB/OS oscillator giving me a lower risk entry opportunity, this is a stock I'm going to attempt to purchase before the end of the week. I'll set a stop below the 3o Day Moving Average and be willing to take a little short term pain if the pullback continues into the lower part of its channel. I'm this one for at least 3-6 months and hopefully longer.
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