Wow, this is a historic bull run. The breadth of the recovery is astounding and the ZB indicator shows an unprecedented 6x overbought condition this year. How unusual is that you ask? I quickly eyeballed back 20 years and could only count 15x that the indicator displayed overbought. This year alone we have had six. That is amazing. Here is how the chart sits now:
Two things have me fascinated with how the charts are setting up. First the Zweig indicator itself is in an ascending triangle. I would expect at some point the lower trend-line would break. This would most likely be a more major 8-10% type correction. The other area I am watching off this chart is the area around the beginning of the year (Jan 05) when the Zweig went OB and stayed there for 3 days. This lead to a major sell-off. The more people start talking about a run away market and the amount of money on the sidelines, the more we are likely to get this sell-off. If we stay over-bought again tomorrow I will begin thinking major sell-off as opposed to a normal pullback.
This is the same chart zoomed in. I did a write-up about this pattern last week. When the Zweig moves back from overbought, usually after 1 day, a 4.5-6.5% pull back happens. If we were to get a 5% pullback to mimic the pattern established since the beginning of March, that would take us down to 860 over the next couple of days. If tomorrow keeps us overbought, I am thinking the market is setting up for a pullback that is about 2x that. Let's see.
0 comments
Post a Comment