Going through my weekend scans, I find that a lot of stocks are setting up nicely after the gap up on Friday. Here are a few of them. The important levels are marked on the charts itself. Be sure to check when a stock is reporting before taking any position in it.
While going through the weekend ritual of making a watchlist for next week, I couldn't help but notice that the REITs were setting up nicely. Well, looking at the REIT ETF below, it is no surprise at all that many of them are setting up nicely here.
Also, the utility sector is looking promising for next week.
I will be back with the watchlist in a little while.
With the markets being on a tear during the past three trading sessions, its time to have a look at our trusty old McClellan Oscillator to see if the
markets are overbought here. Below are the charts of NASDAQ and NYSE
McClellan Oscillators with the overbought levels marked on them.
As can be seen from the above charts, the markets are well into overbought territory. The NYSE McClellan Oscillator is in fact, at its highest level in the last two years. While the momentum clearly lies with the bulls, the odds now favor a pullback, or at least a period of consolidation.
Here's how to play these markets.
Do remember that an overbought market
can very easily become "more overbought" just as an oversold market can
very well become "more oversold". Then how does one play overbought
markets? Well, here are a few tips on playing overbought 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.
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.