2 TRADING CHARTIST

[TREND1]

1/7/16

The market’s subsurface tells a completely different story. The Value Line Geometric consists of over 1600 issues and is an excellent gauge of how the average stock is performing. It is currently down 20% since last April and hitting a 30 month low today. The advance/decline line paints a similar picture. Although a technical bounce is overdue, it now appears that it’s only a matter of time before the S&P 500 takes out its August lows as well.

Our overbought/oversold indicator, at –5.45, is the most heavily oversold that it has been in since September 28th, so there is no question that a powerful snapback rally is overdue. One might be tempted to try and sell into the rally. It’s a judgment call. Our advice is to respect the sell signal. The rally could come from much lower levels.