Closing In On Overbought

The market remains oversold on an intermediate term basis and sentiment remains bearish. It will likely take an intermediate term rally to turn all those newly minted bears back into bulls. However, on a shorter term basis we will be overbought at the end of this week.

If the market manages to rally through the end of this week than I would expect a pause at minimum and possibly a correction next week. All this analysis assumes that there are no game changing negative events out of Europe.

Normally, after a rally of the magnitude we just had I would call for a correction next week. However, in the past couple of years many of these overbought readings have only led to sideways pauses. There have been far fewer corrections during intermediate term moves be they up or down. Hence my call for a pause at minimum.

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