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It’s only been 9 trading days since the stock market began its latest recovery. During this short period, the Dow, S&P 500 and Nasdaq rose 6.91%, 6.89% and 6.28%, respectively. This is an impressive performance, however, it may mean that stocks are slightly over-extended now.

Additionally, the graphic below shows a high percentage of stocks trading above their 10-day moving averages for all 3 indices. This suggests that things may have to cool off for a short while before the probable move up can continue. Friday’s sideways action may have been the first sign that this has already started.

DJIA, S&P500 and Nasdaq are Slightly Over-Extended in the Short-Term

Comments (2)

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1. Scott said:
Monday, 10th Dec 2007 at 8:46 am

Nod on your post today :) I agree with Mo that this will be a near term profit taking correction.

If i was to hazard a guess, any serious med cycle, sell signal the late day of the fed meeting would probably be a good profit taking sell, if you trade that way. It was this exact same set up on a sell signal in late oct that sent us into the large cycle correction we just experienced. My guess is folks will be anticipating it. I personally am not going to trade the downside. But don’t listen to me, make up your own mind.

Mo, I noticed you do the same thing i do. I am going to change my use of the word short term to near term when talking about charts. Short could be confused to easily. So for me its now near term, med term, long term. a mild suggestion, i hope you dont mind.

2. Mo Shaarani said:
Monday, 10th Dec 2007 at 9:44 am


Wouldn’t sell either. We just might get a 50 point rate cut, and that will most probably cause a rally. If we get a 25 point cut, then I think we’ll move sideways for a little while, because that seems to be factored in.

I’ll see if I can come up with a better way to talk about time periods. Also because there’s no universal agreement on the actual amount of time. But then again, if there was an agreement that, for example, short term meant two weeks exactly, you’d have to say ‘give or take a few days’ every time. Maybe it’s better to keep it loose.

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