Sunday, March 14, 2010

How overbought are the markets NOW ?

And the answer might surprise you. Last weekend, I had posted about the McClellan Oscillator being in its third most overbought condition in two years. I had also subsequently written that there were two ways a market could come down from these overbought levels (a) A sharp pullback (b) A choppy market where we rest for a while. Well, it seems that the market has chosen the second option for working off these extreme overbought conditions. Though all the major indices were up for the week and you wouldn't be wrong to expect the markets to have as a result become more overbought, the indicators tell a different story.

As you can see from both the NASDAQ and NYSE McClellan Oscillator charts, the oscillators moved down this week and are now at slightly overbought levels rather than the extremely overbought levels at which they were last week. Another couple more days like the last week we had and we could be ready to resume the uptrend again.

Lastly, with all this talk about overbought markets, I would just like to point to this post that I wrote last week - What does being overbought really mean?

Take care and good luck!

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