Markets have once again gone into extreme overbought territory. There are some things going on right now that are reminiscent of early July, right before the markets fell off a cliff. In this market these readings could either mean a pull back or pause day. Just have to see.
One of my favorite indicators is Zweig Breadth Thrust. ZBT helps to identify overbought and/or oversold situations. Today ZBT hit 64.98. It’s only been higher one other time this year and that was on July 1st when it hit 65. 94. A few days later the markets rolled over pretty hard. I’m not saying that that is what is going to happen, but you just have to be worried when ZBT is acting the way it has been the past few days. This is T2103 over at FreeStockCharts.com, BTW.
4wk New High/Low Ratio, T2122 over at FreeStockCharts.com, is another one of my favorite indicators in helping to identify when markets are oversold or overbought. Today this hit 95.57, which is in about the same area it hit just this past Monday, in late August, and on the 7th of July. Each of these high readings was followed by a market decline of one degree or another.
$NYSI rose by 93.06 ticks today. As I mentioned on Monday, a climax signal usually comes when $NYSI rises by this much. Tuesday we had a nice decline, but I have no way of knowing whether or not history will repeat. Only thing is, in the time that I’ve been tracking $NYSI this type of signal has not failed.
$NYDNV dropped to 70.54 today. This type of low reading has worked well in the past at signalling an extremely overbought market and readings below 150 have appeared before every market decline, regardless of degree.
$NYADV rose to 2714 and readings this high have also appeared prior to a market decline, even if that is only a one day decline.
$NYAD, the daily reading, rose to 2348 today, another sign that the market is extremely overbought and readings in this range have also appeared prior to a market decline.
$TRIN closed at .40 today and is a sign of too much buying. On Monday, the $TRIN closed at .67.
94% of today’s volume went into advancing issues, another sign the market has moved into extreme overbought territory.
$SPXA50R rose to 94 today. That’s the highest reading in two years. While this indicates that the market is running on strength, it’s also a warning that the $SPX may be priced to perfection.
Based on all of the above, I have to expect some kind of give back tomorrow and at a bare minimum some kind of pause day. Looking at ZBT and a couple of other indicators you have to wonder if we might get something a bit more sinister. But don’t let that bother you. I’m just a paranoid trader.