Turning bullish, but short-term overbought

To demonstrate, let’s look at the first chart which presents our On-Balance
Volume (OBV) Indicator Set. The Climactic Volume Indicator (CVI) measures
extreme OBV movement within the context of a short-term OBV envelope for each
stock in the index. The Short-Term Volume Oscillator (STVO) is a 5-day moving
average of the CVI. The Volume Trend Oscillator (VTO) summarizes rising and
falling OBV trends. These charts tell us if the index is overbought or oversold
based upon volume in three different time frames.

The first obvious feature is the price breakout above the three-month declining
tops line, which signals that the trend is turning upward. Next we can see that
the CVI and STVO have both hit their highest level in a year. While this is
evidence of the short-term overbought condition, it also implies that an
initiation climax has occurred, an event that signals the beginning of a rally.

While the short-term overbought condition tells us to expect some pull back
and/or consolidation, the second chart presents a positive intermediate-term
picture. It displays our three primary intermediate-term indicators for price,
breadth, and volume. As you can see, while the price index was making a series
of new lows, the three indicators were either flat or trending upward, forming
positive divergences. Also, you will note that all three indicators have been
moving up from very oversold levels, and they have a long way to go before they
become overbought.

Finally, most sentiment indicators we follow continue to reflect strong
pessimism, which is bullish for the market.