Late In the Rally

By some measures the market will be maximum overbought at the end of the day today and by other measures the market will be maximum overbought at the end of the day tomorrow. Regardless of which indicator we look at (10 day moving average of advance-decline line or 10 day moving averages of the put/call ratios), we are approaching a short term overbought reading. The seasonal strength in the market should last through tomorrow but then weakens. It seems that a lot of evidence is piling up that we are getting late in this rally from a short term perspective.

The last few times we have gotten short term overbought, the market has completely fallen apart. The bulls would like to see the market hold itself together while working off this overbought reading. From an intermediate term perspective the rally still has room to go. Sentiment is not yet extreme and we are not intermediate term overbought.

A rally through tomorrow would likely lead to some short term weakness. As we get short term overbought I will look to pare back trading longs and possibly write covered calls.

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