Perils of an Overbought Market

Not surprisingly, in view of the steady advance for the entire month, the action on Monday gave the impression that it had run into difficulty that may turn out to be the start of a long-anticipated and stubbornly elusive pullback. In the last few days, the already very overbought indicators, such as the spread, the volatility index, the longer-term Arms Index moving averages and the low volume have become even more so as the market edged higher.

Now the shorter-term Arms Index numbers have joined the parade, as we see on the second chart, below. The five-day is overbought, and the 10-day has offsets coming up that are likely to also put it in the overbought category. If the advance is not yet over some pulling back, it is certainly extremely likely. This is not a time to be buying, in my opinion. Any sign of weakness would look like a time to move to the short side....228 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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