Maximum Overbought

First off, let me say that I'll be the first to admit that I underestimated the strength we've seen in the market during these past 2 weeks. I was clearly wrong to think we'd go sideways. So now what? Well, the market making yet another YTD high and this time with authority, yet another cohort of stubborn bears have been wiped out today. But now I think we will finally get the sideways/down action I incorrectly called for. Why? Because the market is now maximum overbought. Take a look at the following chart.






This is just about as good as it gets for the bulls in the ST. I've never seen such an extreme in the OB/OS indictor as I do now except for early January which as you can see was a major IT peak which led to a nasty down leg. Now before any bears start salivating remember what I said before about bearish setups/omens in a bull market....they tend to have a lot less bite, so don't expect the market to fall apart like it did after early January.



To corroborate the extreme overbought market, the put/call ratio (pcr)came in today at very low 0.66 indicating extreme greed on the part of option players. Sure, it may be distorted due to options expiration this week but anytime the pcr gets this low a correction is usually just around the corner options expiration or not...I've seen it happen before. The last time I saw a reading this low was in late August. The market went sideways for a few days before dropping 2% on Sept 1.

So, we have a maximum overbought market with option speculators pilling into call options hand over fist...sounds like a recipe for a pullback. We may not see it happen instantly (although it could) but one thing's for sure is that I will not be touching the long side here. It seems now inevitable that SPX 1100 and DOW 10K will be hit. I think they will...but not after a rest in the market.

I will be looking to add back the POT put position I got stopped out on before if I see a good set up. I'm also looking at the November QQQQ 39 puts for an "all or nothing" type trade. I've advocating against picking tops or bottoms and I rarely to I attempt to do so. But if there's a solid edge, like I think there is now, I will
take a stab at it if I can get a good entry point.