Monday, September 23, 2013
Overbought and could be more risk this time as the 200DMAs are stretched for the major indexes
From the last post, the stock market rallied higher after making a short rally and brief correction lower as forecast. Short term overbought hints were alerted last week. As stated in past posts this year, the stock market ignored this short term signal and continued to rally for several more weeks before finally turning down. But this time it could be different. As I looked at the charts I noticed that the 200 day moving averages of the major indexes haven't been touched in over 9+ months. Rarely do the indexes goes beyond 12 months without touching their 200DMA. Not only it's being over 9+ months but the indexes are quite overstretched away from the 200DMA so the risks have risen greatly. The stock market can continue to move higher for a couple more months but that will also raise the risk of a possible larger sell off later. So for now is advised to start to take off majority of positions (or even prepare to completely scale out of all long positions) and wait for the indexes to come back down toward the 200 DMAs.
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May had probably sounded a bit alarmed for an imminent correction to occur because of the overstretched 200DMA. That was not what I intended. The stock market could get several days of pause or correction during the medium term uptrend (which the stock market is in) before continue the moving higher. If that's the case where the stock market continues to move higher than what I suggested is to start placing sell stop orders several percentages below the closing price and adjust them higher each day afterward if the prices continue to move higher. --- JimmyC
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