Is the Stock Market Overbought?
Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week.
I was reminded yet again that financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.
After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:
J.W. Jones is the author of OptionsTradingSignals.com
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