That subject title is a bit harsh, but it’s fair to say that I’ve been warning that the market has been creeping into overbought territory for the last week or so.
Finally, on Tuesday our marvelous Medium-Term Market Timer did go into overbought territory (above +0.80) … but the market has continued to surge!
Now, the rule is that we ALWAYS need price confirmation, and that has not happened yet, so that’s why I’m not really the boy who cried wolf!
And I am by no means a perma-bear either. In fact, my selections have been overwhelmingly bullish up to today.
However, now I feel the indices are getting a bit of vertigo. The kind of parabolic move we have just witnessed on the indices is almost unheard of in my 20+ years live trading experience, let alone the studies I’ve made going back to several decades before that.
It’s frothy to say the least, and I am sure the right move is to not chase. Clearly, there are going to be plenty of opportunities in the coming months, and that’s very exciting after a somewhat choppy and turgid time for many issues. There are exceptions of course, like TSLA.
On a pre-earnings basis, I still like the look of UPST and PLTR, but they will have to be contingent on a breakout. If they gap and I miss it, then so be it.
The Medium-Term Timer has been overbought for four days now. It’s true to say its oversold signal is more reliable and with a better hit rate. But I think we need to look at the parabolic move of the S&P, the over +0.80 MT_Timer reading and and put it into some context.
When you look at my pies in the OVI Markets Daily area, one of them is called Momentum Initiator. This filter identifies recent bars that opened low / closed high (bullish) and opened high / closed low (bearish).
Right now you see it reads 13 bullish vs. 6 bearish.
That does not tell the whole story.
Click on the pie for more detail and you’ll see that the pie conditions require corresponding OVI readings.
Now use the VIP TradeFinder to purely scan for bullish vs. bearish momentum bars without any other filters, and you find a different story.
40 bullish vs. 84 bearish.
Now, I’m not saying doom and gloom, but I want to put some perspective on what we’re seeing here.
We have a parabolic bullish market, combined with a persistently overbought reading on a very good indicator.
And on Friday, in the top 1000 stocks, we have a skew to more bearish momentum.
Plus a doji type bar on the S&P …
Time to ensure you raise any stops on profits.
Time to be super selective on any further bullish trades.
Time to be extra aware and learn from what we’re seeing here.
Soon we will deploy our new shorter-term market timer available in the OVI Markets Daily area, so we’ll get more color on where we are right now, and how we would trade the S&P as an ETF/Stock all on its own. That’s going to be another hugely valuable asset for us.
But in any case, once earnings season is over (or perhaps before) I can see this market taking a good rest.
It doesn’t take a genius to say that this parabolic run will run out of steam soon.
This week I’m being super selective. I want to see how Monday opens first.
Today I’ll show you how I filtered for Up and Down momentum stocks all on their own, using the VIP TradeFinder.
On Thursday I will unveil our latest technology. Make sure you attend the webinar as it’s a biggie!
The new Watchlist/Stock-Profile/Journal/Charts combination will save you enormous amounts of time, and will make you a better trader, guaranteed.
Make sure you qualify by enrolling on my WiseTraders Event for 4th December.
For my options traders, we have another Miami Bootcamp Masterclass on Monday, where we’ll play some more with the new Analyzer, with several very important tweaks having been made even since last week.
Remember, you can play the video at 1.25x or 1.5x speed to whizz through it faster if you like! I have placed all the stocks covered in today’s review in your “Latest Preview” watch list.