Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Beta Test



• As of last Thursday, 73% of the NASDAQ 100 (NDX) issues were overbought using a 14-period stochastic oscillator (Exhibit 1). Since the rally off the March low, readings greater than 70% kicked off consolidation periods in a clear uptrend.

• The average decline from above 70% reading to consolidation low was 4% over the following 14 trading sessions. It is important to note that as more time elapses since the March low, the consolidations seem to be longer and deeper, meaning this consolidation could be worse than the average (Table).

• In a healthy market trend (Exhibit 2), overbought isn't as much a sell signal as a "don't chase and wait" signal. In a well defined trend of higher highs and higher lows, being negative doesn't make much sense. What does make sense is to not chase and wait until extreme near-term overbought levels are worked off.

Table 1 - NDX takes a chill after 70% overbought reading

Exhibit 1 - Overbought issues reaching near-term extreme

Exhibit 2 - Visual of over 70% readings

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos