The Swenlin Trading Oscillator (STO) is an overbought/oversold indicator that can assist in identifying short-term tops and bottoms. There are two versions, one using advances and declines (STO-B), and one using advancing and declining volume (STO-V). DecisionPoint analysis considers these to be short-term indicators. Right now they are quickly reaching oversold levels not seen since August when we saw the rally begin a steady rise.
Typically in a strong bull market we see these indicators oscillate mostly above the zero line, but in August, they dipped down to oversold extremes. We want to see these low readings because they usually arrive on the cusp of a short-term rally (or more depending on the intermediate-term conditions). As you can see the STO-V has just about reached its lowest reading in a year. The STO-B still has more room to slide lower. Both indicators are continuing lower and haven't bottomed yet. I'll be sure to alert you when they do make what seems a genuine bottom.
Intermediate-term indicators are also falling, but they are nowhere close to oversold territory. Heck, they're not even in neutral territory just yet. This suggests to me that there is more consolidation and possible decline to digest. I'm not overly worried about the state of the ITBM and ITVM given they have been able to oscillate mostly above the zero line, so we may not have to take a big intermediate-term hit before they turn back up.
Conclusion: The moral of the story is that we still need to exercise caution in the near and intermediate terms. However, the STOs suggest better times ahead in the near term when they make a bottom in their already oversold home.
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