Relief Rally Would Likely Be A Short Term Top

The market will be overbought at the end of the day Monday. If the market has a relief rally after the Greek elections on Monday that will likely mark a short term top. Short term overbought readings used to consistently lead to pullbacks. In the momentum market of recent years many times we have seen short term overbought readings worked off by going sideways for a few days.

The chart below is the 10 day moving average of the NYSE Advancers-Decliners. We will be dropping negative numbers today and Monday so the line should be moving higher. By Tuesday it will be very difficult for the line to continue to climb.

On an intermediate term basis the market remains oversold. That is the reason I will not likely be looking to play this short term top aggressively. I used the rally to sell some covered calls but I don't plan on doing much more. The chart below is the 30 day moving average of the NYSE Advancers-Decliners

Sentiment seems to be lining up with these readings. A rally on Monday would likely get market participants a little too bullish short term. But in the intermediate term a two month decline has turned many cautious.

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