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Odds Favor Short-Term Bounce before Hitting a Ceiling

By John Del Vecchio and Brad Lamensdorf

The market got very oversold last week.

Just like a rubber band being stretched too far in one direction, it will snapback hard when the energy is released. Markets often operate the same way.

Below is the TIR Indicator which measures short-term overbought or oversold conditions.

Odds Favor Short-Term Bounce before Hitting a Ceiling
Odds Favor Short-Term Bounce before Hitting a Ceiling

The TIR measures 29 different short-term indicators and is calculated by Investors Intelligence. 

The gist here is that markets bounce around and cane become overbought and oversold. Extremes create short-term opportunities. 

As you can see, the indicator tanked and is stretched to the downside, hitting a low of about 8, but wiggling up to 10.3 last Thursday.

So, the odds favor a bounce. The market has bounced since last week. How far can it go? No one knows. But we do know this.

After the bounce comes the ceiling.

In recent Chart’s of the Week we have talked about many stocks losing momentum and the market valuations on the rich side of the spectrum. Overvalued markets can become more overvalued. But, fading momentum is a clear warning sign. Another red flag is that market sentiment is still too bullish.

All those factors favor lower prices in the intermediate term.

Those factors create a ceiling on prices. 

The Active Alts SentimenTrader Long / Short strategy uses numerous indicators, in multiple timeframes, to identify market extremes and adjust exposure accordingly for superior risk-adjusted returns. To learn more, visit activealts.com 

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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