Why The Market Could Correct From An Overbought Condition

March 18, 2003
Dave Landry

On Tuesday, the Nasdaq initially sold off
but quickly
bounced back. It then chopped back and forth for much of the day. It rallied
once again going into the close.

The S&P also had a choppy, narrow range day.

So what do we do? The additional upside in the
indices has them even more overbought. This is confirmed by short-term average
advance/decline readings and longer-term readings (e.g., McClellan Oscillator).
Further, tonight (Tuesday) we have a TRIN Reversal sell signal triggering (as
usual, email me if you need the rules). Therefore, focus on the short side
but stick with those sectors that still appear to remain in longer-term
downtrends. For those anxious to get long, remain patient. Some tech
areas such as biotech, software and the semis have been making nice transitions
higher as of late. These sectors, which are now overbought like the market
itself, could set up soon on a pullback.

Looking to potential setups, ASA Ltd.
(
ASA |
Quote |
Chart |
News |
PowerRating), mentioned
Monday night, still looks like it has the potential to resume its downtrend out
of a
pullback from lows.

Areas of financially related stocks such as selected banks
and insurance, appear to be stalling out after rallying into resistance. This
action sets up a pattern I call a Witch Hat.

Considering the above, Hartford Financial Services
(
HIG |
Quote |
Chart |
News |
PowerRating),
looks like it has the potential to resume its downtrend out of a Witch
Hat.