Just as everything is looking up, the stock market goes into overbought territory. Stocks are overbought, so tread lightly on investing more money into the market and if you’re the type of investor that likes to trade, here’s your chance to take profits.
I probably won’t be lightening up here. The market is still in a rally and this rally has been treating our stocks very well. I’m riding the tide.
Also note there hasn’t been a good buying opportunity since the last time I did an Overbought Oversold post, on August 3rd. So the market’s been overbought, was just slightly oversold, and is now overbought again. Things seem healthy.
There’s no telling how far this rally will go
The second chart is one of the Dow Jones Industrial Average as of yesterday. It seems we are getting to a point where the marekt could top and turn back down — but there’s no signs this will occur.
- There has been no high volume selloffs recently.
- Stocks that fit-the-mold are breaking out.
- Breakouts are holding.
The Dow isn’t flying higher, which suggests to me this is a focused rally. I like rallies that focus on a core set of stocks because it alows things to continue on. If the Dow were to jump 200 points for a few days in a row, that would entice traders to sell stocks, which in turn could kill the rally and then the top stocks could turn down if the selloff grew into a correction.
