The market is overextended – there is no arguing that.
Yesterday was insane. No arguing that either.
But the market can go higher than you’d ever expect, just as it can do the same to the downside. Nonetheless, it is important to observe the extreme readings that the market is exhibiting because it does increase the possibility of a pullback at any given point in the future. And so by observing these readings you are also planning your strategy for when the market finally does decide to take some profits.
For now, recognize the extreme readings, plan your strategy accordingly, and when the price action matches what we are seeing below, then you will know it is time to start booking those gains.
In the chart below you will see the T2108, which is the percentage of stocks trading above the 40-day moving average. What is most glaring is how at its current levels dating back to 2014, it has resulted in an almost immediate sell-off thereafter when those levels are hit.
Here’s the T2108:
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