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.

Overbought percentage - part 2



Yesterday's commentary surrounded the overbought percentage in the NASDAQ 100 (NDX) and S&P 100 (OEX). The percentage-overbought reading was reaching toward an extreme territory. Today, that percentage is extraordinarily extreme. The percentage overbought in the NAZ (using a 14-period stochastic) currently stands at 86%. On the surface, one would think that is a bad thing.

The last time the reading was that high was October 16th, 2001. The reading was immediately followed by a 6.4% correction in the NDX. That correction was followed by a 31% gain over the next six weeks. Again, the only problem I have is that there were so many extreme oversold readings preceding that intermediate-term low, that quite simply just don't exist right now.

So where does that leave me? Just looking at the stat, you got to be bullish AFTER a nasty day or two right?. When I take into account that there were very few extreme oversold readings on intermediate-term indicators prior to last Wednesday's low, I would simply open up the possibility that the recent low may be sustainable.

I thought the market could have a one or two day wonder due to the prolonged weakness from the January high, but I certainly didn't expect a gain of nearly 10% in the S&P 500 and 12% gain in the NDX. That said, as I have outlined over the last couple of days, the intermediate-term resolutions needed to change my view have not kicked in. Certain factors, like the above NDX overbought history, suggest the possibility of a more sustainable low. Other factors that I have outlined et nausea suggests this recent rally is a bear trap. In my view, neither framework can - or should be - ignored.

No matter how one looks at it, the surge from last week's low was very powerful and needs to be corrected. It will be through the eyes of that correction and the cause of it that determines the next course of action. Despite popular opinion, we don't need to make an investment decision on the next tick. Clearly, I missed the surge off the low, but I would rather not make one mistake into two by saying I am positive on the tape AFTER a 10% move and historically extreme overbought readings.

I would like to throw a shout out to our boyz in the Weapons Company, 1st Light Armored Reconnaissance Battalion, based out of Camp Pendleton, CA. One of their Sergeant's sister is one nice minyan! Stay safe boyz and thanks.

< 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