Monday, May 4, 2009

Overbought Levels and Lengths

Some nice perspective from Bespoke Investment Group:

Investors are worried that the market is set to pull back now that we have reached overbought levels (1 standard deviation above the 50-DMA). However, markets can stay overbought for long periods of time just as they stayed oversold for months at a time during the most recent bear. The S&P 500 has now been overbought for ten days in a row. Since the bear market started in October 2007, the only other streak of consecutive overbought days ended at 15 last May.


When we look at streaks of overbought days going back to 1928, however, the current 10-day period is nothing but a blip on the screen....MORE