Squawk Morning Briefing: What Is Oversold?

Markets are beginning to show some signs of being oversold in some indicators. Trends in put/call ratios have reached some pretty bearish extremes which often lead to short-term reversals. Other indicators such as averages of the the Advance – Decline line have moved pretty far pretty fast but could certainly go further.

As we discuss in today’s videos, evidence continues to mount that we are likely beginning a downtrend that has legs. To confirm that trend and also to identify our place in it we want to see a corrective bounce that then turns back down. A temporary oversold condition would lead to such a bounce. Perhaps it is beginning now, and we have some wave counts that would be satisfied that we have counted five waves down if equities begin to bounce. However, oversold is a condition that doesn’t give us timing.

In chat on Tuesday the following analogy was useful: It is easy to see when everyone is paddling hard on the same side of the canoe but harder to tell when one of them will slip and send everyone sprawling.

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