The stock market’s been on a tear this year, up 7% year to date. Yes the market’s still undervalued by 20% or more, but the Overbought Oversold Oscillator says we are due for a rest.
Overbought Oversold Oscillator
The Oscillator has been in overbought status since December 23rd (Christmastime) of last year. We’re now a week away from Valentines Day. The market’s been oversold the entire time — refusing to take even a small breather.
This can’t last — but it can. What I mean is eventually we will get a correction, but we can stay in overbought territory for a long time. There’s not a rule that I’m aware of that says we must have a correction by a certain day.
Dow Jones Industrial Average
The Dow has been screaming ahead since Thanksgiving — around 1500 points higher. The market was too cheap back then and had to rise, my best guess is we will see a correction that gives up half that gain — which would be a move down to Dow 12,000.
I want to stress the market was unbelievable cheap last year. I wouldn’t dump your portfolio just because we’ve had a little gain. I think the majority of the big move is ahead.
Bottom Line
Its time to take profits in stock’s you feel have hit their Fair Value. I also recommend selling stocks you’re not that high on to free up cash to invest in other opportunities down the road. The market’s been overbought for a while.
