"The chart is very oversold..."
Mind if I differ? I calculate a 14-day relative strength indicator (RSI) based on daily closing prices. This is essentially a short-term measure of momentum. The standard numerical recipe used can be found in several books on technical analysis.
Yesterday's close of 18 1/16 just barely put us into the oversold area -- for the first time since the mini-crash nearly a year ago.
Important Disclaimer: This is not necessarily a buy indicator. In fact, sometimes it turns out to be a sell signal, as it points to investors' willingness to bail at whatever cost. In some massive sell-downs (easy to find these days), getting out after first reaching oversold levels was the thing to do. Stocks which stay oversold cause one to contemplate doing terrible things, depending on ones predisposition.
Of course the bottom in VTSS a year ago turned out to be a great buying opp, especially if you had the foresight to get out when you had a double (or better). This is where fundamentals make a difference, i.e. is the oversold condition due to market or business conditions?
An oversold touch is often followed by a rally to neutral RSI. For VTSS that's about 25+, but the number changes day to day with each close being added into the mix. This would be a reasonable short-term objective, assuming everything goes OK.
A really good bottom, one which can eventually lead to an over-bought condition occurs after a momentum/price divergence, meaning a lower price low on a higher RSI low. This often happens after a brief return to neutral momentum.
To sum up: a lower RSI low (such as we just had) usually points to a lower price sometime out a couple of weeks. (Remember, 14 market days is almost 3 weeks in real time). I guess a likely scenario would be a rally into earnings, and maybe some follow-thru afterwards if they're good, then a sell-off to a new low.
ChrisMeister |
