Short termed overbought

December 16, 20204 Comments

Very short blog today. Friday I will post my yearly rant–as I have done for over a decade. This time, I present the inequity of the Canadian taxation system, particularly under the current political regime. Rather than just whine about it, I present a potential solution that would be fair to all. The solution may be a little tongue in cheek, but like all humor, there is truth behind it. If you prefer to avoid my off-topic or political rants, give Friday’s blog a miss. But if you love the idea of a feisty stab at the current Canadian Prime Ministers office, you may want to tune in.

A quick look at the markets before my Friday rant. Right now markets are overbought in the near-term, despite being relatively healthy in the longer term. The weekly chart, representing that mid-long termed view, presents a breakout from consolidation, with rising moneyflow and MACD. True, MACD looks extended, but RSI is flat with no signs of being overbought or divergence. That implies a healthy mid-termed view. Stochastics, being the neartermed indicator is looking a little toppy. The fast line has not hooked through the slow line, and it hasn’t rounded over yet…but its getting close. This implies neartermed risk.

Breadth is very positive on the markets, suggesting the long termed view is healthy. This summer, the market had too much concentration in the tech names and “stay at home” stocks. That’s changed. Almost too much, given the stratospheric levels of the % of stocks over their 200 day SMA’s. That indicator is showing similar highs that it hits before most corrections. The severity of these corrections is determined by a backdrop of many factors. Given the current rotation by the market into value and commodities, this implies that a market correction will likely be heaviest in the overbought names, and less so in value/materials. In other words, it will likely be a healthy pullback (assuming there is one) rather than a massive correction. The market is already working the excess of the tech names out right now – as discussed here.

That’s it for today folks–back on Friday with my rant, then will post 1-2 blogs next week as we head into the holidays.

4 Comments

  • Hello,

    How deep will this correction likely be for major index like S&P 500 based on your charts? if it happens…Thanks!

    Reply
    • Jason–the breakout point from the recent consolidation on the SPX – which is near 3500-ish- is very likely the target (like you said, if it happens…).

      Reply

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