The markets are swinging with “insane volatility,” says Rick Pendergraft.  Right now, the Dow is more oversold than since 1974. This means a short-term bounce is likely. It may be the time to get involved.

This from Investor’s Daily Edge:

As an options trader I would normally welcome the volatility. But I prefer my volatility to be a little more structured than this.

Option premiums have jumped sharply higher as a result of the increased volatility. The VIX is a direct measurement of the premiums paid on S&P options and it is at its highest level ever, reaching 70 on Friday.

I have mentioned before that I run a nightly scan of overbought and oversold stocks in the Nasdaq 100 and the S&P 500. I do this to get an overall gauge of the market and to look for potential turning points.

As of Thursday’s close, 99 of the Nasdaq 100 were oversold (congratulations to Verisign on being the lone stock not oversold). In the S&P 500, 493 stocks qualified as oversold. These are unprecedented numbers. I was not running this scan back in 2001 after the terrorist attacks, but I have to believe the week after would have been the only other time when the numbers would have been this high.

Based on the ten-month RSI, the Dow is now more oversold than it has been since 1974. That is not a misprint. It really was 1974 when the 10-month RSI for the Dow dropped below 18. As of this writing, the RSI is at 17.40, it hit 17.01 in September of ’74. This is the only other time in history it was this low. Even in the Great Depression, the 10-month RSI didn’t reach these levels (the lowest reading was 20.32 in June 1932).

The Dow dropped below its 200-month moving average last week. The last time it closed a month below this trend line was June 1982.

I have focused on the Dow because as an index, it has been around the longest, but the S&P and Nasdaq are setting records too.

Last week was the worst weekly loss in the history of the S&P, both in percentage terms and point terms. I am sharing a lot of historical data with you to make the point that the panic selling has reached epic proportions. We are seeing unprecedented levels of selling.

I believe we will see a bounce, and it will be soon. I don’t think the market is going to turn around and go into a long-term rally, but I see it rising over the next few months.

That being said, if you have been on the sidelines, it isn’t time to go diving in head first, but dipping your toe in would be the safe way to play this market. If you didn’t change your portfolio six months ago, now is not the time to do it. If you are ten or more years from retirement, don’t go selling out of everything in your retirement accounts now. In fact, now might be the time to increase your allotments to your 401-K.

If you are within ten years of retiring, you shouldn’t have very much in the stock market in the first place.

If you have the patience and the fortitude, we could see another unprecedented state in the near future. An unprecedented buying opportunity, but like I said, don’t go diving in head first.

Source: Organized Chaos Has Turned Into Complete Chaos