After the Drop, We're Still Overbought
The swings have become very short and very big recently. Just as the session opened last Thursday, I was saying that the rally seemed to have further to go, even though it still looked like a countertrend rally. The old resistance in the S&P 500 at about 1210 was my possible target. Actually the rally did continue, and the 1210 level was even slightly exceeded in just the next two sessions. But the rally resulted in the five-day Arms Index moving average becoming suddenly overbought by the end of the week, suggesting the rally could be running out of energy. So yesterday's drop came as no surprise.
If we look at the second chart, below, we see that the five-day is still overbought. The drop yesterday was not accompanied by a bearish enough reading of the Arms Index to eliminate the condition. Consequently it looks as though the drop is going to continue for a while. That ties in well with our longer-term hypothesis of a more important cycle low, probably below the August low, coming late this month or in early October....322 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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