Don't Get Carried Away by the Rally

I have suggested lately that Washington politicos might pull a rabbit out of a hat -- and they did, ostensibly avoiding the fiscal cliff -- but the rabbit may be rabid. A rally did follow, as I had anticipated, but please don't get too carried away by it. Remain aware of the longer-term overbought situation. The market is in a region that has turned it back repeatedly over the last few months, and it is not far below the all-time highs touched 13 years ago.

Shorter term, the five- and 10-day moving averages of the Arms Index are still oversold, but not by much. That leaves room for this rally to linger, but I am unwilling to go long, even though it has been just a few days since I was looking for a trading rally. As the bigger, daily AI numbers are replaced in the next three sessions, conditions are likely to become more overbought, which would prompt me to call for selling and shorting again....220 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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