I’ll take credit for calling for a bounce, but I in no way expected today’s mega move. Do not expect the move to continue tomorrow as we have pushed into extreme overbought territory for several indicators. However, it’s still early and it’s what happens at the close that’s going to be very, very important. If the Pro’s sell the close, then markets will be under pressure tomorrow. If, on the other hand, the Pro’s buy the close then there’s a good chance we’re headed higher, at least in the short term.
I wrote last week (I think) that there had been a shift in market dynamics from “buy the dip” to “sell the rips.” If there is some follow through on Thursday, then we could be looking at a shift back to “buy the dips.” But we won’t know until Thursday’s bell.
We have several indicators that have pushed into extreme overbought territory and as long as the market doesn’t get sold off into the close, then these indicators are saying, as of 2:55pm ET, that we should all look for a ‘pause’ day for tomorrow. A ‘pause’ day, by my definition, can be anywhere from a plus or minus day of about 50pts. This would be a day of indecision where traders digest the previous day’s action and look for clues about market action on the day afterward, that being Thursday, in this case.
The following charts, which you can check now and after the close, will let you know just how overbought the market is. The horizontal lines on the charts show just how overbought the market is. The horizontal lines don’t always have to get tagged or exceeded but the indicators should come close.
$NYAD, the daily reading.
$NYMO with Bollinger Bands and on this chart, which isn’t updated until about an hour after the close, you’ll be looking for $NYMO to push up to the upper BB.
(Be sure to bookmark those chart sites so you check them when you want.)
After the close, you’ll want to head over to Free Stock Charts and check the readings for Zweig Breadth Thrust and 4wk New High/Low Ratio. I don’t think either of these will push into extreme overbought levels, but I check and log them everyday, and so should you.