Thank you for providing the formula you use for determining the market conditions you observe. I will be plugging around with it this evening and am looking forward to studying the results.

That's scary to know that the value got as low as the fall from the 9/11 attacks - I am suprised to hear of this reading. The decline at that point was so much more severe than current conditions, yet the formula must take in relative/current conditions.

That is always a good analogy I have used - the band indeed is stretched and we should see a quick snap-back, however temporary it will be. A retest is likely, and should be the initial play, but buyers may have had time to reassess conditions this weekend and Monday's action may surprise us indeed. People don't want to miss a move and if the aggregate sentiment is one of "I have to jump in now," then we should see strength that will not allow for a (current) test of the 200 period MA.

We're in a precarious situation and have reached a major Technical Decision Node, and the upcoming action may set the tone for the next few weeks from a technical trading perspecive.

Thank you for your comment!

Hey Corey,

Great post. I maintain a proprietary indicator to gauge the overbought/oversold condition of the market on a short-term basis. Basically, I take a moving average of NYSE up volume, down volume, advancers and decliners and divide and multiply. See below for the formula I use;

(10dma Up Volume divided by 10dma Down Volume) times (10dma # of Advancers divided by 10dma # of Decliners)

The average value of this formula going back to 1995 is 1.21. The upper and lower extremes are 3.80 and 0.17 reached, respectively, as of the close on May 12, 1997 and September 21, 2001. The value of the formula as of Friday's close was 0.20. While the indicator doesn't work as well for signaling short-term tops it's pretty good for signaling short-term bottoms. Please note the value is almost as low as it got on the fifth trading day after the 9/11 attacks. While I am a position rather than a day or swing trader I like to keep tabs on the short-term condition of the market (overbought vs oversold).

The rubber band is stretched pretty tight and I agree with you the market is due for a snapback rally. As you pointed out the S&P's 200dma at 1448, just 10 points from where we closed on Friday. I think this level will be tested. The only real question I have is whether the 200dma gets tested tomorrow and the market rallies from there or does the market rally tomorrow and will test the 200dma on a pullback at some future date? I think it's the latter so I also agree with you that what happens after the snapback rally is what is really important.