The Market Manages to Stay Alfoat (How Long Can It Last?)

September 28, 2006 · Print This Article

For the second straight day the market traded in a fairly tight range. The market held steady today but how long can the bulls keep it alfoat? SPY and DIA have yet to break through the strong resistance that lies immediately overhead and three out the four major indices remain in an overbought state.

Historically, the longer an indice stays in an overbought/oversold position the sharper the reversal (at-least over the short-term). Given the poor action, by both buyers and sellers I have to think a short-term reversal is near (within the next day or two).

It would not surprise me to see a sharp spike higher that initiates the short-term wave of selling. This type of action is typical during in this type of market. If this does occur and brings the major indices into a “very overbought” state intraday I might be tempted to react by taking a small position on the short side of things. Staying on the sidelines has ben my best trade so far. Of course, participating in the recent rally would have been nice. It did happen off of the 1310 area I mentioned a few posts back, but unfortunately my price targets were not met. Many of my readers listened to my advice and establised long postion at the 1310 area, so of course their success makes me very happy. Have a great night!

RSI Wilder (5) for September 28, 2006