ChartWatchers

MARKET IS BULLISH BUT OVERBOUGHT

Chip Anderson

Chip Anderson

President, StockCharts.com

The weekly chart of the S&P 500 Index below reveal that prices are behaving in a very bullish fashion. The index has broken above the gradually rising trend channel that prevailed from 2004. In March prices pulled back and successfully tested the support provided by the top of the channel. Since then the rally resumed, making new highs and apparently establishing an even steeper rising trend channel.

Because prices have reached the top of the channel, we must consider that the market is overbought, and there are plenty of other indicators that will confirm this; however, there is no technical justification to turn bearish at this time. It is possible for prices to continue to rise just below the top of the channel, or another correction may take place, taking prices back to the bottom of the channel. Worse could happen, but I do not expect it.



Bottom Line: Overbought conditions in bull markets may cause more caution than usual, but higher prices can occur, even as the overbought condition corrects.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More