Almost Short Term Overbought

As I have been writing for a week now we will be short term overbought at the end of the day today. We remain oversold in the intermediate term. A short term overbought condition generally leads to a pullback or some sideways movement. The intermediate term oversold condition makes it likely that the market rallies to a higher high once the short term overbought reading is worked off.

A decade ago a short term overbought, even within an intermediate term oversold,  would consistently lead to pullbacks but in recent years we have seen more sideways movements. As a result I no longer look to play these short term overbought readings aggressively. I have sold out of too many markets where I believed we were going higher but was looking for a pullback.

The S&P 500 has rallied 70 points and I expect us to pull back some time this week. It is prudent to take some profits and as a result I wrote some covered calls and I allowed some short put positions to expire without rolling them. With that said, I am holding on to the majority of my longs despite my expectation of a pullback.

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