Patience and self-knowledge are the two biggest assets in trading the markets.When an overbought market starts to present itself, it is so easy to think that "next day" it will fall. It rarely does. But it will, one of these days. Soon.
The RSI, for instance, still has room on the upside to reach its classic overbought reading of 70.
But there are plenty of other readings calling this as overbought.
Plus, momentum is slowing. For example, the number of new 20-Day highs in the 50-Leaders this week has been:
- Monday - 22
- Tuesday - 18
- Wednesday - 13
In a rising market we want to see new highs continuing to rise. The market is not, however, in serious threat until we start to see New Lows also start to rise. Today they were sitting on a Zero.
I have a "bodgie, homemade" indicator that gave a "sell" signal today. What? On an upday? You must be mad.
Maybe.
It's an early warning signal. Last time it gave a "sell" signal was five days before the top in June. In simple terms, it is based on the number of up-days compared to the number of down-days over a specified period of time.
Let's see how good it is this time. Maybe its a lot of rubbish. :)
I'd reiterate the criteria for a sell signal that I gave at the weekend:
- a break below the uptrend line from the low in late August
- a break by the MACD below its signal line
- a break by the RSI below its mid-line.
Patience.
Cheers
Red
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