Last week we concluded that overbought market internals will result in a pull-back.
To put things in perspective, this is how overbought both the OEX and NDX
were on the eve of July 4th:
That's right. All 100 components of both indices were on a short-term buy
signal. When everybody suddenly gets so bullish, who's left to buy?
Friday's sell-off went a long way towards dampening bullish sentiment but
did little damage to the technical picture. The SPX has been making higher
highs and higher lows since June 4th, and that action bears some resemblance
to the November 2011 rally, which gained almost the exact same amount of points
(110) in the same number of days (21):
Therefore, for the bullish analogy to remain alive, the SPX shouldn't drop
below 1317, and should ideally stay above 1337.
George Krum is the author of the "CIT Dates" blog and several
books available on Amazon.
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