It has been volatile for a few months now in the stock market and we have seen everything from Soybeans to SP-500 drop vertical.Many traders including hedge funds mangers have thrown in the towel and many predict that the market will head lower over time. We are not saying it won't but we trade patterns that repeat themselves over time and not trading predictions.
By looking at the weekly chart of SP-500 you can see a pattern that is very similar to the beginning of 2008. Based on this historical pattern we would not be surprised to see a rally/bounce from these oversold levels. We are also experiencing a potential bear trap in SP-500 when the price action on Tuesday took out the low of August only to rally intraday and close at the high of day. We even saw some follow through yesterday so far proving the bear trap valid.
The bounce can either be used to sell out of stocks or even enter new trades trying to make a little profit on this potential rally. This is not a recommendation for either but if you decide to go long remember to use stops. Also if you do want to enter some new trades we suggest looking at stocks where the charts are not damaged with the recent selloff and where the stock is still in a strong uptrend.