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Stock Market Overbought Pullback Today....Could Use More...

Stock-Markets / Stock Markets 2016 Nov 29, 2016 - 06:38 AM GMT

By: Jack_Steiman

Stock-Markets

Today was a day for some unwinding, and we could use more. The market sold a bit today, but did so in a way where price didn't run away from the primary oscillators. That's important in the study of pullbacks because it tells us whether the internals are turning more bearish as we see some, and, thus, tells us deeper selling is likely. We should, and could get more, but thus far nothing that says something dramatic is about to take place. If the market wanted deeper selling, we would see huge gap downs on consecutive days that run lower as the day moves along. No matter how powerful a given bull market may be, you always find a time to sell when things get too overbought for too long a period of time.


It's very unhealthy for a market to get too overbought too often. Spikes in RSI to near 80 plus, or even 90, often can put in tops once the froth snaps lower. This is particularly true on daily charts, but can also be true on shorter-term, sixty-minute, time-frame charts. Too many visits to the 80's or 90 on the RSI can be a top for longer periods of time than the bulls want so again, it is best to unwind before things get out of hand in the world of froth. And make no mistake about it folks, froth is definitely with us in a big way as evidenced by the likely 35% plus reading we'll see on Wednesday so it's good we sell a bit to take some of the air of the bulls. Today sold, but did so in a fashion good for the bulls and the bull market.

The market internals remain strong. Advance/decline lines have been confirming price for some time now. As long as that's the case the bulls can feel good about future price action. If the market had been advancing on weak internals, then it's likely the market price action would soon turn bearish. For now, we're seeing more sectors than not preforming well in price and internals. Always under performing sectors, but the majority remain in good shape. The, ones that are weak don't stay that way for too long. Lots of rotation still going on as well. There's nothing in the big picture that says the market is about to implode, but remember this, it is one gigantic bubble of nonsense, so anything is possible. That said, the bulls should feel good about the technical picture overall.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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