The Daily Chartist: The Oversold Rally Continues

But Helene Meisler still believes there will be another trip down before this entire correction is done.
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May 27

The moderate oversold condition continues. However, as a further explanation why this oversold reading is not as bullish as, say the February oversold reading, I have labeled the chart with two points: A and B.

Point A actually is to show you the three oversold readings we got late last summer and into the fall. The first oversold reading is in mid-August. We bounced from there. We fell again in late August, where the oscillator made a lower low. That lower low tells us that the ensuing rally will be an oversold rally and not much more. The third time down in which we do not make a lower low in the oscillator gives us the all-clear to buy stocks again. It's that lower low that shows us the loss of downside momentum, telling us the path of least resistance is now up.

The same held true for the three trips down in December, January and February (Point B). We have just made a slightly lower low in the oscillator vs. the March low. This says we will have an oversold rally followed by some sort of pullback, which will likely hold at an higher low, thus giving us the all-clear to buy stocks again.

So for now, the oversold rally continues. However, I continue to believe there will be another trip down before this entire correction is done.

(Note: For those who have requested to see these charts on a one-year basis, I have posted them as such today. I will do this once a week on Thursdays from now on.)

New Highs and New Lows

Overbought/Oversold Oscillator

Cumulative Advance/Decline Line

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on TheStreet.com. Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at

KPMHSM@aol.com.