(Click to Enlarge)
As you can see from the chart, every spike in the Oversold indicator to between 50 and 60 has only been the A of an A-B-C correction (the green vertical lines in the chart). Will it happen again this time? I don't know, but this chart has been very helpful in the past. It also makes sense logically if you think about it for a few minutes.
I've also labeled where we are with concern to the Overbought chart. Currently there are 60 out of 100 stocks in the OEX that are overbought according to my measures. I have a horizontal green line and then vertical dark blue lines to show what this has meant sometimes in the past few years.
I don't just use this chart to trade with...thank god, but I think it would pay to be careful here and not get too complacent and think that we are going straight up. We are in a bull market, but I love the quote by Raschke (I think it was her at least) where she says that the market will tend to do the most obvious thing in the most unobvious way.
P.S. I put the lines on the chart pretty quickly so they may not be exact, but you will get the idea.
Best,
LB
