Where is the pullback?

September 18, 2006 · Print This Article

As I stated last week, “oftentimes, sharp moves during expiration week can be deceiving. Will this past week’s move fall into that category? Not sure. But, I can tell you that the technical picture is pointing towards a short-term move lower. The Nasdaq 100 and Dow are now in a “very overbought” state, just another feather in the bears cap going into next week. When the indices reach this type of level the probability for a short-term pullback starts to look very good.

Well, I have been talking about a short-term pullback for several days now and we continue to trade in the top edge of the current trading range. Bearish indicators and tendencies continue to pile up, yet the market has been able to hold its current position.

The second half of September is one of the weakest periods during the trading year. As we enter the second half of the historically weakest trading month of the year, almost all of the major indices are in an “overbought” to “very overbought” state. If the bears are going to make a move this is the week to do so.

The next two days should be interesting to say the least. There are quite a few economic reports due out tomorrow and the Fed is to report on Wednesday. I am still leaning towards the bearish side over the short-term as I always have to side with the high-probability setups. But that does not mean that I can’t implement tight-stops. Money management is always key in this type of market or any market for that matter. Just ask Amaranth.

RSI (5) for September 18, 2006