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An Overbought Bear Market?


Market may be pushed to the limit in the short term.

Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

As I said in Dow Watch: Time for a Pullback, I believe it's not only the resistance, but the reaction to the resistance, that counts.

Here's the S&P 500 in relation to Fibonacci retracement levels. Today's bounce is coming off the first retracement level, which is a sign of incredible strength.

Click here to enlarge.

After all, today seems to be on track for the fifth 90% upside day since March 10. (The number of times it's happened before? Zero.)

Like everyone else, I'm watching for last week's highs to be taken out on this second try. If so, the level that will attract attention is in the vicinity of 870.

My main concern for imminent trading action is the level of overbought conditions that we're witnessing (I didn't think I'd be talking about overbought conditions in a bear market, but nothing in this market is strange).

Some of the overbought conditions surely found temporary relief after Friday's decline, but one of them -- the S&P 500 Short Range Oscillator -- stands at an overbought 7.3. (For perspective, the highest level witnessed since the start of the bear market was +8 on January 8, 2008.)

So, while the market is definitely strong internally, we might be pushing it -- to the limit -- in the short term.
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