Why The Market Still Looks Poised To Correct From An Overbought Condition

March 19, 2003
Dave Landry

On Wednesday, the Nasdaq opened flat but soon turned lower
and continued lower throughout the morning. It then found its low by mid-day and
generally chopped way higher throughout the rest of the day. This wasn’t enough
to keep it out of the minus column though.

The S&P also bumpy but managed to tack on a decent
gain.

So what do we do?Â The song remains the same: The additional upside in the
indices (less the Nasdaq) has them even more overbought. This is confirmed by short-term average
advance/decline readings and longer-term readings (e.g., McClellan Oscillator).
Further, the 3-day average TRIN readings hit another relative low on Wednesday
(and triggered a TRIN Reversal sell signal on Tuesday*).Â Therefore, focus on the short side
but stick with those sectors that still appear to remain in longer-term
downtrends And, wait for entries in light of the additional upside movement. One
again, for those anxious to get long, continue to remain patient. Sectors which
have been performing very well lately such as drugs, software (today
notwithstanding), biotech, and the semis could form transitional setups
soon.Â

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

Hartford Financial Services
(
HIG |
Quote |
Chart |
News |
PowerRating), mentioned Tuesday
night, stillÂ looks like it has the potential to resume its downtrend out of aÂ Witch
Hat.