June 29, 2017

Major Indices Remain in a Short-term Overbought State

Random Thoughts

Three of the top five most short-term overbought ETFs that I follow are major market ETFs. DIA, SPY and IWM (in that order) are currently “very overbought” on a short-term basis. The RSI (2) of SPY and DIA are roughly 96 and above and IWM is not far behind at 92.

As I write this the futures are higher and if we open at these levels we will see another test of the recent overhead resistance that has plagued the bulls since last Wednesday’s historical surge.

As I stated yesterday with DIA and SPY in short-term extreme overbought states coming off huge gaps to the upside and battling with strong overhead resistance the probability for a short-term reprieve is high.

However, as we all know, stranger things have happened during the seasonally bullish month of December. Add the historical bullishness of December triple witching and one can quickly see how the market could push significantly higher before a significant decline occurs. As contrarians, we have all witnessed the power and irrationality of short-term trends (the most recent observance was in the month of October) so as always pay close attention to the position size of your trades whether you are bullish or bearish.

Remember, position size IS the key to long-term success as a trader.

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