E Are Stocks Set Up To Bounce?

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the overall stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend. In the updated chart below the orange square highlights the MTUM consolidating into a trading range. It is reasonable to expect a recovery bounce out of the trading range after being extremely oversold and already the orange circle indicates downward momentum is dissipating

Another tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market “breadth” indicator used to gauge the internal strength/weakness of the market. Like many of the technical market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. We always point out how in recent years technology stocks have been a relatively reliable indicator of overall market direction. In the updated chart below, the orange circle denotes the current extremely oversold strength indicator where the Nasdaq usually stages a recovery bounce. Similar to the MTUM ETF above, the orange square in the $BPCOMPQ chart below shows the Nasdaq Index consolidating into a trading range. The next probable move is higher especially if upcoming quarterly earnings season produces favorable pronouncements.