The Dow (NYSEARCA:DIA) has once again moved into ”very overbought territory” and our shorter-term proprietary indicators are nearing also nearing an extreme. I mentioned yesterday that if the bulls can sustain the positive momentum through today then we could see a short-term opportunity present itself as early as Friday. Thursday of option expiration week is typically positive and tomorrow is no different as the S&P, Dow and Nasdaq 100 are historically higher 61.9%, 71.4% and 71.4% of the time.
Remember, historically if the market is overbought as the market moves into the week of post options expiration a decent short opportunity is usually found. In this case, the large-cap Dow looks to be the most favorable for a short play. As you can see below the major indice is already in a “very overbought” state and continued push higher will only increase the probability of a short-term move lower over the short-term (1-5 days).
As a trader, it can be frustrating waiting for high-odds set-ups, but as my loyal readers have witnessed since the inception of my service, patience pays. Knowing when to sit on your hands is often the most difficult aspect of trading. I will allow the market to make that determination for me over the next few days. Stay tuned!
Overbought/Oversold levels for May 16, 2007
SPY - 69.3 (neutral) DIA - 84.0 (very overbought) IWM - 42.7 (neutral) QQQQ - 54.1 (neutral) GLD - 27.2 (oversold) OIH - 70.1 (overbought)