For the purpose of new readers...Each day we track the percentage of overbought and oversold stocks using a daily 14-period stochastic indicator to get a read of the market internals vs. simply looking at the indices. In our view, tracking the internals may take more work, but can be much more important than simply going by an index chart. Typically, I only speak of these readings when an apparent inflection point is reached.
Today's overbought and oversold readings on the S&P 100 (OEX) and NASDAQ 100 (NDX) are as follows:
OEX: 66% OB, 11% OS NDX: 73% OB, 5% OS
The last time the NDX overbought reading was over 70% it ushered in roughly a one-month consolidation period (but weakness was not immediate in either occurrence). We are careful to say consolidation because the period was more choppy than negative. Either way, this seems to be one of those times in an overall constructive market, to not chase and wait for some better prices or enough time for overbought to be worked off before adding to positions, especially in NAZ.
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