August 17, 2017

Rally leads to short-term overbought levels

The market rallied hard today off the recent oversold levels. That might be putting it mildly, as the day closed with the 3rd largest percentage advance in roughly four years. Moreover, it was the first two day rally in over a month. Now the market is once again nearing an overbought state and typically in a bear market (if we are indeed in the early stages of one) overbought levels are quickly sold off.

Many of the indices are back at strong levels of overhead resistance which means we could get a short-term reprieve over the short-term.

One thing is for certain the market has moved off of the extreme levels that were in place at the close Monday. Now the real battle begins between the bulls and bears.

Again, I expect to see a downdraft in the market over the short-term, but given the postive seasonal bias that exists in December the next pullback could be an opportunity for me to take a close look at some short-term to intermediate-term long positions.

Before I get too aggressive I want to see how the market reacts to another pullback. IF we drop right back down to the levels seen Monday then I would have second thoughts about the possiblity of a so-called Santa Claus rally. As I stated yesterday bearish Novembers lead to bullish Decembers so the historical precedents are in place, but as we all know in the world of trading nothing is certain.

According to the Stock Trader’s Almanac tomorrow is seasonally bullish, but then the seasonal sentiment changes back to bearish on Friday with the S&P closing lower 67.7% of the time.

Overbought/Oversold for November 28, 2007

S&P (SPY) – 62.6 (neutral)

Russell 2000 (IWM) – 61.1 (neutral)

Dow (DIA) – 65.2 (neutral)

Nasdaq 100 (QQQQ) – 66.9 (neutral)

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