The battle between Bulls and Bears continued on Monday, July 27.
CNBC's Art Cashin and other market analysts myself among them, sees a near term correction based on an "over-bought" market. What does the term "over-bought" mean to a trader? Investopedia says: "In technical analysis, this term describes a situation in which the price of a security has risen to such a degree - usually on high volume - that an oscillator has reached its upper bound. This is generally interpreted as a sign that the price of the asset is becoming overvalued and may experience a pullback."
The preferred oscillators (cyclical indicators) are typically based on volume and relative price. The price can be relative to other stocks or indexes (Relative Strength Index) or to their own historical price (various Moving Averages). By all of this information, traders can get "a feel" for the future near term direction of the market, which is decided on emotion and momentum. Longer term, it is fundamentals that matter most. By the measurement of "fair value" based on moving price averages, most stocks are now in an over-bought condition and so are ripe for correction.
But in the medium term, later this fall and into 2010, the markets may again have to weaken to reflect an economy that is taking longer than some expect to get back on track. So, any rally following the near term correction (this week) will be cut short by economic reality in September and October.
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Disclosure: No Positions