Here’s How This Overbought Condition Differs From Others This Year
Here is what I wrote last Monday:
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It’s a positive that the S&P 500 has broken out of a ten month base to new
yearly highs.
yearly highs.
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It’s a positive that most mid-cap and small-cap indices have moved to new
highs.
highs.
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It’s a positive that UTILITIES and TRANSPORTS continue to act well. I am a
little wary about UTILITIES though based on recent BOND action.
little wary about UTILITIES though based on recent BOND action.
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It’s a positive that the New High List has expanded markedly this past week.
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It’s a positive that all major indices are now back above their short-term
and long-term moving averages.
and long-term moving averages.
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It’s a positive that volume has expanded into this move.
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The worst thing I can say about the technical condition of this market is
that it is overbought in every way, shape and form. Price is extended and
sentiment is extremely bullish. During an appearance in Phoenix this
weekend, I asked the large crowd whether they were bullish or bearish. 95%
of them were bullish…hmmm! But to get this overbought, the market had to
have a big move…and that’s a positive. I actually believe it to
be bullish to get this overbought. Too many get too caught up in the
short-term overbought conditions and forget about the great improvement in
the market. Do not fret any short-term pullback…and yes, I wouldn’t bet
against one…and real soon. The main difference between the overbought
conditions throughout this year and today…is the marked improvement in
the charts. If you are looking for a great entry on the S&P, it would be
on a pullback into the 1145-1150 area.”
that it is overbought in every way, shape and form. Price is extended and
sentiment is extremely bullish. During an appearance in Phoenix this
weekend, I asked the large crowd whether they were bullish or bearish. 95%
of them were bullish…hmmm! But to get this overbought, the market had to
have a big move…and that’s a positive. I actually believe it to
be bullish to get this overbought. Too many get too caught up in the
short-term overbought conditions and forget about the great improvement in
the market. Do not fret any short-term pullback…and yes, I wouldn’t bet
against one…and real soon. The main difference between the overbought
conditions throughout this year and today…is the marked improvement in
the charts. If you are looking for a great entry on the S&P, it would be
on a pullback into the 1145-1150 area.”
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Nothing has changed. The market is in gear. Despite overbought and
stretched conditions, the market continued its ascent late in the week.
There is some tinkering to do though. DO NOT BUY EXTENDED NAMES. I expect
those stocks that are already extended to pull back while new names break
out. This is typical action for a market that is under accumulation. I
must also alert you that major indices are stretched from their moving
averages about as far as I have seen in quite a while. That is a hint to
be more careful here as pullbacks may be imminent. That said, I now expect
any pullback to not go any lower than the 1150-160 on the S&P.
stretched conditions, the market continued its ascent late in the week.
There is some tinkering to do though. DO NOT BUY EXTENDED NAMES. I expect
those stocks that are already extended to pull back while new names break
out. This is typical action for a market that is under accumulation. I
must also alert you that major indices are stretched from their moving
averages about as far as I have seen in quite a while. That is a hint to
be more careful here as pullbacks may be imminent. That said, I now expect
any pullback to not go any lower than the 1150-160 on the S&P.
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Gary Kaltbaum