Overbought condition continues; index stochastics at extreme levels


Wednesday was the first day of a new QQQQ up-trend by my definition.   The GMI is now at 2.   The more sensitive GMI-R is at 6, reflecting the strength of the short term up-trend.   The QQQQ, SPY and DIA have yet to break through important longer term averages.   The daily stochastic (10,4) for each index is in overbought territory: QQQQ (85), SPY (95) and DIA (97).   Stocks and index ETF’s can stay overbought for a long time. The important point to remember, though, is that declines tend to begin from a stochastic reading above 80 and advances begin from a level below 20. Check out the daily chart below of the S&P500 ETF, SPY, and its stochastic below for an idea of how it works at tops and bottoms. (Click on chart to enlarge.) The other two index ETF’s look similar to SPY. At some point we will get the decline and the key to the trend will be where it bottoms out.

3 thoughts on “Overbought condition continues; index stochastics at extreme levels”

  1. The DJ-30 is hitting heavy resistance at the 200 day MA and is also incredibly overbought. This is very bearish. Futures are pointing up right now but I wouldnt be surprised to see googles earnings take a hit on the market tomorrow.

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