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Overbought percentage and a prayer


I wasn't going to do a column today because I wondered on a day where the "war deadline" is going to expire, what I could add. This is a total "guess" day in my view. One thing for sure is that the market's gain has been very powerful and very impressive. As you know, one of the indicators I track is the percentage of stocks overbought/oversold in the S&P100 (OEX) and NASDAQ 100 (NDX). I do this every day very early in order to get a feel for the indices from its components rather than simply looking at the index chart.

Today I found nothing extraordinary in the OEX, but noted that 71% of the stocks in the NDX are overbought. This is a pretty high reading and suggests two possible scenarios. The first is that stocks are up too much too quickly and due for a nasty correction. The last time the reading was this high was right near the peak on 11/27/02. The second is that Wednesday was in fact an intermediate-term low and the market remains strong and has a number of overbought readings near this level over coming weeks. This scenario would be similar to the Oct.-Nov. readings.

So which is it? The answer should come very quickly. If it is scenario one, then the weakness should come very quickly. The problem right now is that assumptions are being made on an event that has yet to take place. Right now, most are on the long side and looking to stay that way. While I continue to believe that the market outlook is neutral at best, there is always the potential for further gains near-term on confirmation of the positive assumptions going into the attack on Iraq. I am not yet convinced the gains would be sustainable, but guessing doesn't do me any good. If all the indicators suggest that it was the mother of all positive divergences for the low, far be it for my opinion to get in the way.

My only hope today is that God blesses the men and women who are fighting so that I don't have to feel another building fall and have the gift of freedom, which includes communicating with you. God bless our troops and those sending them into harms way for our benefit.
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God bless our troops and those assisting them
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