Overbought markets to be avoided (for now)

This blog is not going to appeal to longer termed investors, as I am going to address neartermed trading only. For those who do like to trade within shorter horizons, I am looking at some overbought markets that may deserve a pullback – and potential buy-in point later. I use a simple system to give me neartermed signals as to the relative “overboughtness” or “oversoldness” of a security. I call it the “Neartermed timing system”. Pretty creative name, eh?

 

Buy and sell signals are made if I see a simultaneous touch of the upper or lower Bollinger band, RSI extreme, and Stochastic extreme. These signals are not long termed signals. But- when we look at them on a daily chart, and combine the signal with an agreement on a weekly chart formation – they might offer a clue to both a neartermed and mid termed potential move. Here are a few overbought markets that are signalling overbought

 

SPX:

Overbought signals from two of the three indicators (stochastics and BB’s) within the neartermed system, testing and (so far) failing its 18 month resistance point in the mid 2900’s. RSI didn’t get into overbought territory—although its darned close. I’m still calling it a potential sell.

 

Gold:

I like the gold chart, as noted on this blog  – but it’s gone parabolic. Way overbought according the three neartermed timing signals. Look for a pullback and re-enter when these signals go back to at least a neutral zone.

 

Long bonds

The long bond has been overbought for a few weeks and hasn’t really pulled back enough to rid that excess. Meanwhile, Stochastics and RSI are diverging in trend against the bond price. This implies waning enthusiasm for rising prices. I’m actually slightly short (via an inverse ETF) on this position – and would increase the position if it starts to round over – which I expect it will sooner rather than later.

 

Bitcoin

Bitcoin is more than a bit overbought. Way over the neartermed timing systems safe zones. I’d expect a pullback soon.

 

Canadian dollar

The USD’s fall and a rising barrel of oil have pushed the loonie too high too fast. It needs to pull back – RSI isn’t officially overbought, but its close enough. Stochastics and BB’s are at the top of their ranges.

 

Happy Canada Day, eh?

Apparently my namesake will be at Burls Creek Ontario for a Canada Day Rolling Stones concert this weekend. Rock on, Canada!

BTW–this guy scares me….

 

8 Comments

  • Interesting that articles in the National Post recently highlighted gold reaching $1400 and the Cdn. $ possibly going to 78c. Both just in time for being overbought and prone to a correction.

    Reply
  • Like you said overbought so a pullback can be expected.

    Gold looks good now settling down, it’s current run is looking very good for more upside. The USD it about to break it’s next immediate support in that 95.85 range all good for gold bugs along with the odds of interest rates going dswn this could propel the spot price in the $ 1650 to $1700 by year end, since you’re in a silver ETF play it should follow & outpace gold % wise.

    https://www.tradingview.com/symbols/TVC-DXY/

    Keith he scare you but he rocks.

    Cheers & happy Canada day, if you drink don’t drive.

    Marc in Gatineau

    Reply
  • Keith…..S&P will be over 3000 a week from now.
    Happy Canada Day !!…..chris

    Reply
  • Keith – I follow you on BNN and I really like your blog. What about the TSX 60 (XIU)? It doesn’t look overbought as it re-approached a new high. I did read your concern on Volume.

    Reply
    • Dean you are correct–the tSX is not quite so overbought as the SPX–but it is influenced by the SPX so it bears watching nonentheless

      Reply
  • Hi Keith,
    Do you still expect george weston to get to $110.00 this summer?
    Thanks,
    Barry

    Reply
    • Barry–I don’t have a specific timeline but I do think it can hit $110 in the near future. Summer, fall, early winter type of time frame. Meanwhile, it is a consumer staple, so likely much less volatile in what could be a rocky market.

      Reply

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