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Tuesday, May 21, 2013

No Technical Evidence to Support an Overbought Market

English: source: my own photo.
English: source: my own photo. (Photo credit: Wikipedia)
This orderly advance will probably continue to chug along to new daily highs

Profit-taking in some of the most active sectors of the year dominated trading. Health care stocks fell 0.6% and consumer staples lost 1%, but health care is up 22% and consumer staples are up 17% since the beginning of the year. Precious metals and energy stocks rose slightly.
At Monday’s close, the Dow Jones Industrial Average was off 19 points at 15,335, the S&P 500 fell 1 point to 1,666, and the Nasdaq lost 3 points at 3,496. The NYSE traded 653 million shares and the Nasdaq crossed 416 million. Advancers were slightly ahead of decliners on both major indices.

Trade of the Day Chart Key
The charts of the Nasdaq and Russell 2000 show daily, steady buying in a narrow zone of advance. The Russell made a new intraday record high at 1,001.5, marking the first time that it has penetrated 1,000. The Nasdaq exhibits the same pattern of a determined advance, and it scored another new 13-year high.
Conclusion: All major indices continue to point to higher ground with most in uncharted territory. Currently, despite feelings by some that the market is overbought, this orderly advance will probably continue to chug along to new daily highs.
I’ve heard some financial reporters use the term “parabolic” to describe the current market situation. Although it is not a technical term, they use it to heighten the fear that the market’s advance is about to end with a dramatic intraday reversal and subsequent crash.
The steady advance of both the Russell 2000 and Nasdaq is the result of steady buying and excellent group rotation, and it is accompanied by relatively low volume. The low volume, at the risk of beating a subject to death, is the result of an absence of buying from the public sector. If the advance was accompanied by spikes in volume and price, I would expect a deep correction. Instead, like a powerful locomotive climbing a steep mountain, this orderly advance will probably continue to chug along to new daily highs..
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