Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
Stocks edged higher again yesterday to top off three days of gains. However, this is far from a victory lap for the bulls as the weekly charts remain broken, so selling the rallies is still the best course of action.
Yesterday, I showed the below chart of the S&P 500 with the stochastics oscillator, pointing out that the wedge (white lines) on the price chart, coupled with the still not yet overbought reading in the stochastics, make somewhat higher prices in the near term possible. After yesterday’s moderate continuation rally, the stochastics now are peeking into the overbought reading, signaling cautionary warnings. However, this does not mean the oversold rally is over quite yet.
Because it’s interesting to point out, and because I received many reader emails asking me for this chart, the Russell 2000 chart looks much the same as the above one of the S&P 500. Stochastics here are also sneaking into overbought territory, but price is moving out of that wedge formation and could have room to run as high as that horizontal resistance level near 776.
The financials were notably absent in yesterday’s upside fun and, in fact, the sector was the only one bleeding red all day. One stock I am monitoring closely as usual is Goldman Sachs (NYSE:GS), which over the past two weeks, has developed a mini downtrend line, which if broken to the upside, could be a sign that the financials, as well as the broader market, has a little left to go in this oversold bounce.
As a potential cautionary sign because of its inverse correlation to stocks, note that silver (as well as gold) is holding up very well after last week’s sharp sell-off. The below chart of the iShares Silver Trust (NYSE:SLV) shows the uptrend since late June remains intact and the current mini resistance area around $40.50, if broken, could lead to a quick move to $43, followed by $48.
Aside from what I’ve mentioned above, it was a rather quiet day, and I expect the rest of the week to continue in this fashion. With the extended Labor Day weekend ahead of us, I believe there is a fairly good chance that the latter half of this week turns out to be even more muted than the first two trading days. I continue to operate in “less is more” mode and am spending as much time as possible on the sidelines resting and observing.
- See Sam Collins’ Daily Market Outlook: Can We Really Keep This Market Going?
- See Sam Collins’ Trade of the Day: Your Next Stock to Sell: Sony
- See Serge Berger’s Trade of the Day: A Rare Pick for an Overbought Market
