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Market Over Extended

Over the weekend, Barron’s had an article stating that 87% of poll respondents stated that they were bullish and ready to commit money to the market. Generally, an overly bullish sentiment is a contrary indicator that the market is ready for a correction.

Above, you see the Oscillator (courtesy of Helene Meisler) that I like to follow. The graphic showing that the reading is above the line and headed higher is an Overbought reading and technically means that we are likely to see the market correct in the near future.

If you’d like to follow an Oscillator in the management of your own accounts, you can cut/paste this link into your browser:

http://stockcharts.com/charts/indices/McSumNYSE.html

It is basically the same as the one pictured here, but I don’t have a way to put a jpeg of it into the blog, so you get the one from Helene which does give me a jpeg for you to view.

As the market has been going up, we’ve been using trailing stops to protect profits in the favored sectors (Ag, energy, metals, infrastructure). Some of those have hit as we’ve had a pull back in those areas and we are in the process of collecting the cash. We’ve put in a number of GTC purchase orders at key technical levels that will likely hit as the broader market pulls back from an overbought level. In a trading range market, this is the only way to achieve a positive return while managing risk levels.

Mark