The risk/return ratio is back in favor of short-term purchases
Indeed, several technical indicators suggest that the market was oversold at the end of last week. The RSI momentum indicator fell into its oversold zone while the percentage of S&P 500 stocks above its 20 and/or 50 session moving averages was below 20%. Elsewhere, the VIX climbed back to the top of its range at 30 and the proportion of bearish individual investors hit its lowest level since 2009 last week according to the AAII survey.
While this oversold environment does not warrant a rebound, it is fertile ground for renewed risk appetite. The risk/return ratio has therefore once again favored purchases in the short term.
However, the Nasdaq 100 will have to confirm its rebound from yesterday by surpassing its Friday high at around 11,300 points. A crossing of this threshold would open the way to a retracement of the last few weeks of decline. A return to 12,000 points would be possible before a continuation of the underlying downtrend.
Entry: Purchase above 11,300 points
Stop: 11,000 points
Objective: 12,000 points
Risk/return ratio: 3
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