Explaining The Overbought

Below are the numbers we will be dropping from the NYSE Advance-Decline line for the next ten days.

We become overbought when we are about to drop a long string of positive numbers. That would mean the market spent the better part of the last ten trading days going up. This is an exhaustion indicator so a ten day period where the market is largely going up usually leads to a rest.

The next two days we will be dropping 2 negative numbers (-1,018 today and -520 Thursday), which is why we are not yet maximum overbought . Starting Friday we will be dropping positive number for the next 6 out of 8 days. Starting Tuesday we are dropping 4 negative numbers in a row. If the market continues to climb I would expect it to become exhausted somewhere between Friday and Tuesday. This is not to say that we will go up further. Only that if we do those would be likely points of exhaustion.


I learned this technique from reading Helene Meisler on RealMoneyPro, which I now chart for myself. She does an excellent daily newsletter using this technique and others.

1 comment:

Where We Stand said...

[...] As I outlined yesterday the market will be maximum overbought somewhere between the close of business today and the close of business on Monday. I would prefer if we rallied through Monday because sentiment is not lining up for a drop. I look at many factors and prefer if all the ducks are lining up. [...]