Overbought Market Nears Dow 12,000

The current market rally has exceeded my expectations, both in duration and in strength. After such a move, am I correct in characterizing the U.S. equity market as overbought? Consider this astonishing statistic. We have now gone 66 straight trading days without a 1 percent drop in the S&P 500 in any given session (July 13th marked the last drop of such magnitude). During that three month period, the S&P has rallied more than 10 percent.

Now I have no idea what the record is for consecutive days without a drop of 1 percent, but given the current streak, I have little doubt we are getting quite overbought at these levels. Unfortunately, much like overbought stocks, just because markets are overbought, it does not mean the rise will stop on a dime. Nonetheless, I am waiting to commit new money to the market. Perhaps some quarterly earnings disappointment will provide attractive entry points for certain stocks in the coming weeks.

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3 Thoughts on “Overbought Market Nears Dow 12,000

  1. Arcturus on October 16, 2006 at 4:01 PM said:

    I completely disagree with you about this market being “oversold.” When was a last time the market peaked just as it hit a new high for the first time in years?

    I’ve been doing very well with my own stock screening method, BTW: http://ergo-sum.net/investing/NewGold.html

    (I’m not selling anything, just bragging.) 🙂

  2. Andy Kern on October 17, 2006 at 10:58 AM said:

    but…His point was that it is overbought, not oversold. ??

  3. http://www.hussmanfunds.com/wmc/wmc061016.htm

    The whole article is interesting, but the section titled “10% corrections” is particularly relevant here, though it is longer term.

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