Stocks Back to Very Overbought Levels [Updated]

The bounce that everybody expected is now in.

In just a few days, it enabled:

  • the markets to shed the fear — the VIX is now back to around 30
  • to move expectations from "we're in a recession" to "I don't see a recession coming, and even if there was one, it wouldn't impact the stocks" (amazing what you can hear on BubbleVision!)
  • to have all the banking analysts come on the air and proclaim that this is not 2008 and that BofA is dirt cheap — including Meredith Whitney who usually has a bearish bias.
  • did I mention the yield on the Greek debt is 60% on a 1-Year note?
  • to take the market to a very overbought stage on the mid-term:

Just look at the RSI (9) chart. it's going throughout the rough. I had never see it reach those levels before.

At these levels, the ES is a nice short for a short term trade.

[update later that day] from the lows on Friday to now, the S&P is up more than 70 points. That's a very impressive gain — as showed by the crazy RSI number. Normally, when we talk about a 70 point decline on the S&P people get very scared, it's almost like a mini crash. Does this crazy melt-up qualify is a crash-up or something? The good thing with the markets is that there always is matter to be amazed, impressed, and learn humility.

[Update 2011-09-02] I have initiated a short position right after this post, at about 1,204. We are now trading at about 1,1180, a nice 25 point gain in just 3 trading days. Speculators should now put in stops in places in order to protect some parts of their gain.


Tiho said...

If you just bought some contracts at the S&P 500 around 1150 you would be up a lot of money. That is that, it was an intermediate bottom... why short little swings?

pej said...

I was happy with that trade. I was aiming at a short-term (several days) trade, and I got more than what I wanted.