Here is a favorite chart of mine called the T2108 – a proprietary chart provided to Worden Charting customers that measures the oversold/overbought conditions of the market. I wanted to give you a look at the chart going back to the market highs of October 2007. The most interesting aspect of all of this is the bearish divergence occurring from July of 2009 onward – signified by the red line that you see on the chart below. Despite the market making new highs, the T2108 was broadcasting warning signs all over the place, as the indicator failed to likewise make equal or new highs itself.

Also interesting was that we have failed to become as oversold as we were in late October/early November of last year – and that pullback was nowhere near as heavy as what we have seen so far in January.

Finally, the October bottom of 2008 is a ways off, so that if we are truly reversing course, we still could see much more in terms of selling-pressures. Which goes to say, if we can continue to rally this week, like we did yesterday, I will be very excited about initiating some new short positions in the near term. For my five favorite short setups, click here.

Here’s the Worden T2108 Chart

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