Wednesday, February 17, 2010

Are the markets overbought?

Well dear readers, it was a pretty slow and boring day at the markets least from where I was looking. Personally speaking, this was a little disappointing as after what feels like many days, I actually had a lot of time to follow the markets today. The S&P index closed at 1099 odd, slightly below the 1100 resistance level I had pointed out in the post yesterday. As nothing much has changed as far as the chart has concerned, I won't be posting the SPX chart today but instead try and figure out if the markets are actually overbought here. My general thoughts on the market haven't changed since yesterday and I still believe that the bulls don't have control until we cross MA(50).

Let's see if the markets are overbought now. First, the NYSE McClellan Oscillator. I have marked what I feel is the overbought zone by the dashed lines. As you can see, we have just entered the overbought zone. We certainly room to go a little higher from here, but the odds are in favor of a pullback here. I would recommend lightening up your longs here and being very careful in starting new overnight long positions.

The Nasdaq McClellan Oscillator is even "more overbought" here compared to NYSE McClellan Oscillator. Like I stated earlier, I think a pullback is imminent in the short term.

Personally speaking, I got out of MTG position early in the day for around 1.5% gain. I later also sold my LCC position at 6.90, a gain of 6%. I later entered NOA at 9.60. It seemed to be consolidating well around 9.60, but a sudden downward spike saw me getting stopped out at 6.45. My stop loss was actually set at 9.49, but I got a bad fill. It turned after that to close at 9.59. No regrets though. That's just the way it goes sometimes. It was a good trade and a loss doesn't change that.

So going into tomorrow, I just have my NEP position open now and am in over 75% cash. I must admit I like being mostly in cash at this point.

That's it from me for today. The bottom line is I do expect a pullback in the short term. How severe that pullback will be, we will come to know by its initial volume.

Take care and good luck tomorrow!

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