You Know That I Go To Extremes

For the past few months the market has gone to extremes, whether they be on the downside or upside. It has paid to wait for the market to become maximum overbought or maximum oversold before trying to call a turn. Just when everybody has gotten used to this dynamic it has changed.

The decline that started a few days before option expiration lasted only a few days and stopped well before the market became maximum oversold. The market would have been maximum overbought today but the market has been struggling since early in the week. Markets do not usually reach maximum oversold or overbought, even though in the past few months they have done so on a regular basis. The reason I focus on it is because when they do it is a pretty good indicator that there will be a correction of the move.

Because the market has not reached maximum overbought and because sentiment has not reached an extreme I do not expect that we will see a sharp move lower. The caveat is that the market will now be focusing on economic data that will start coming out next week and I don't expect it to be pretty. But few people do.

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