Market overbought but still some room to go
One of my favorate breath indicators is the bullish percent index. Combined with sentiment indicators such as the VIX, it provides you with a powerful contrarian perspective on the market. As of 1/14, the bullish percentage index for the S&P500 stands at 87, which is way above 80%, whereas the VIX at 15.46 is only a tad away from the lows of late 2007.
There should still be some upside to this market, given the strength of tech and financial stocks. But be careful once the earnings season is over. Given how overbought this market already is, the snapback could be really vicious. I am looking to buy some VXX or VXZ or call options thereof when I see signs of reversals.
Needless to say, we need to monitor the European (and American) debt situation carefully.
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