July 28, 2017

Another Upside Gap!

Another upside gap occurred today and similar to the last one it finished the day unclosed. What is so surprising about the unclosed gap today is that it came in the face of “very overbought” conditions. All of our indicators have now reached an extreme territory.

Could the gap today an exhaustion gap? One last ditch effort to move the market higher before the market moves in the summer doldrums.  The seasonal “sell in May and go away” is right around the corner and, as expected, May is historically one of the weaker performing months. It is something to consider over the intermediate-term in this already overextended market.

Over the short-term (1-5 days) I would expect to see the market close at least one of the gaps. Yes, I know, I sound like a broken record. But, unclosed gaps that finish near the highs of the day with little pullback intra-day are rare. Especially when they occur over the course of such a small time frame, at new YTD highs while in a  “very overbought” condition. Rare indeed.

Furthermore, given the strong bearish tendencies  of trading days that follow option expiration I think the probability of a short-term move can’t be better. As for how steep the move, who knows. Every attempt at a correction has been quickly bought. The bulls have been relentless. So be nimble and never let a profit turn into a loss.

Overbought/Oversold levels for April 20, 2007

  • SPY –  93.3 (very overbought)
  • DIA – 93.6 (very overbought)
  • IWM – 67.7 (neutral)
  • QQQQ – 77.9 (overbought)
  • GLD – 68.4 (neutral)
  • OIH – 48.3 (neutral)

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