According to the good ol' trusty McClellan Oscillator, the market is at its most overbought since last July. Following are the charts for the NASDAQ and NYSE McClellan Oscillators with the overbought levels marked on them.
Its obvious that the odds greatly favor a pullback here.
How to trade these markets?
(1) Don't go chasing momentum stocks now. Chances are you will be left holding the bag.
(2) Take partial profits from longs and let the rest run.
(3) Don't wait to sell at the top. Calling the top is a fool's game.
(4) If you want to go short, start with a small position. This way you can give it room to run instead of being forced to call the exact top. If the market indeed reverses, you will get plenty of chances to add to your positions later.
(5) Most importantly, keep your stops on all short positions no matter how confident you are of a pullback here. Remember, the markets can stay irrational a lot longer than you can stay solvent. The above assumes that you are rational in the first place :).
1 comment:
I agree that the market is overbought, I expect a market correction in the near future... Not much of a market timer, I hope to be on the right side of the trend if/when it happens. For now I am bullish.
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