Friday, February 1, 2013

An "overbought" stock market

The stock market as measured by the S&P 500 has become exceptionally overbought in the last couple of days.  The 20-day price oscillator which is used to measure the short-term internal condition of the market reached its most overbought reading on Tuesday, Jan. 29, since January 19 of last year. 

I would point out that the market continued to rally until late March last year after reaching this overbought reading, so it’s not necessary for the market to pull back sharply from here.  What is needful, however, is for the 20-day oscillator to pull back from here and drop closer to a normal reading before traders can start making new long commitments.  At the very least, traders should be very selective when purchasing stocks.

The Gambill Oscillator, which measures corporate insider buying and selling interest, has also reached a level which suggests the insiders have swung to the sell side of their own company's stocks.  The following chart is courtesy of Hays Advisory.

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