The Market Is Probing for a Bottom

NEW YORK (TheStreet) -- Thursday the stock market got even weaker, continuing its sell-off from Wednesday. The DJIA closed at 16,264.23, down 4.76 and the S&P 500 closed down 3.52 points at 1849.04. The Nasdaq took a big hit again, down 22.34 points, with the Russell 2000 index down 4.04 points to 1151.44.

The Nasdaq and Russell 2000 indices are both extremely oversold by internal indicators and could rebound  to the upside at any time. The sell-off in the markets has shaken out the weak hands. This was long overdue, and necessary for the markets to move higher.

Many pundits are now saying that a market top has been reached. They're turning bearish. But that is a very premature statement to make. The S&P 500 index is down a whopping 2% from its all-time high. That is hardly a reason for bearishness. With such extreme oversold signals at hand, look for this market to rebound from this short-term correction and move higher over the next few trading days.

My internal indicators are finding a huge amount of both large-cap and small-cap stocks that are oversold. Large-cap stocks are those with a market cap in excess of $4 billion; small-caps fall below that cutoff.

One of those small-cap stocks that released earnings after the close of the market was Restoration Hardware (RH). This was a stock that we bought and sold earlier this week. Currently it is trading higher by 10% on those earnings. Another small-cap stock that we bought on Wednesday was Orbitz Worldwide (OWW).  We sold that for a better-than-3% profit on Thursday, and bought it back again after it turned red on the day.

A few positions that we added at the close were Las Vegas Sands (LVS) and Hologic (HOLX).  Both are large-cap stocks that are extremely oversold.

Turning bearish on the stock market may prove to be premature. There will be a time to be bearish, but that time is not now.

Be patient and opportunistic and the rewards on the long side will be rewarded.

At the time of publication, the author held OWW, LVS and HOLX, but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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