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This Is What Overbought Looks Like

Carl Swenlin

Carl Swenlin

Founder, DecisionPoint.com

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It occurred to me that some of our primary indicators have created a teachable moment. Specifically, our short-term and intermediate-term indicators are both at fairly extreme overbought levels, and now is a good time to talk about what that means.

The Swenlin Trading Oscillators for breadth and volume (STO-B and STO-V) are near the top of their normal range, and that usually coincides with short-term price tops. The IT Breadth and Volume Momentum Oscillators (ITBM and ITVM) are also near the top of their normal ranges, and that normally coincides with intermediate-term price tops. With indicators from both time frames at overbought levels, there is strong technical pressure for prices to make a noticeable decline.

Conclusion: This condition occurs about every two to three months (see the red, downward pointing arrows for previous events), and it is fairly reliable as a top warning. While all four indicators are still rising, they are quite extended, so I would expect a price top soon, probably this week. Not guaranteed, just likely.



Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin

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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More