Warnings Emerge

As expected, the Federal Reserve shook things up briefly at the end of last week. The market advance was large enough to break through the old highs, and the volume was heavy enough to make it look convincing. Now the market will have to seek a new resistance level, and there is no recent history to use as a reference. Yet the extremely overbought condition we have been seeing has only become more extreme, which suggests that the markets need a substantial pullback. One such warning was referred to last week: the Volatility Index (VIX). On the second chart, below, we see that it is now at the most complacent level seen in five years.

The breakout on volume suggests the rise could go further, but the overbought condition, including both short-term and intermediate-term moving averages of the Arms Index, warn that a selloff could be sudden and large....247 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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