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Buzz & Banter



Tony makes a great point about what to expect from "overbought' conditions. As he points out, overbought readings do not necessarily result in disastrous selloffs. As a matter of fact, a couple of years ago I remember Smith Barney Chief Technician Louise Yamada observed that the most disastrous selloffs tend to occur from deep oversold readings, not overbought readings as one might expect.

In 1998 the intermediate Optionable Bullish Percent and the longer-term NYSE Bullish Percent both reached highs above 70% in April before reversing to defense. With the exception of a brief respite in July of '98 for the NYSE Bullish Percent, which the Optionable did not confirm, these indicators remained on defense throughout the summer before reversing up in September. The initial reversals in September '98 occurred from very low, washed out levels (10% for the Optionable and 20% for the NYSE). These indicators moved higher very quickly in the fall of 1998. For example, by November the Optionable had reached 70% and the NYSE had hit 60%.

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