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Strategies & Market Trends : Strictly Buy and Sell Set Ups -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (12264)	4/29/2007 1:52:43 PM
From: chowder	Read Replies (1) \| Respond to of 13449

FOOD FOR THOUGHT ... Overbought vs. Break Outs .............. Over the last couple of weeks, there have been quite a few calls from the talking heads on TV and some from the message boards, about the market being overbought and to take some profits off the table. Some shorting has taken place and others have hedged their portfolios by buying the bear funds and stocks that benefit from a falling market. Well, the market has been overbought. That doesn't mean it should be time to sell though, unless you are strictly looking short term. The market can't break out to new highs without being overbought. The market can not enjoy a Stage 2 uptrend without looking overbought. That goes for any sector whether it's the OSX, SMH or any other trading vehicle. Back on 4/20, with all of this overbought hysteria going on, price formed a high volume, wide range bar on the DOW. It is impossible to get a high volume, wide range bar on the DOW without professional money supporting the price move. Impossible! As I have shown here, time and again, high volume, wide range bars at break out points are often the beginning of the next leg up in a trend. The DOW has confirmed that for us once again. The day following the break out, the market corrected. I heard talk about the break out being attributed to climatic buying and the correction was coming. Note the volume on the correction day. It was the lowest in the last 10 days, indicating professional money was holding on, not selling. Look at the volume bars over the last two weeks on the DOW. We have 9 up days, 8 of them with above average volume, and just 1 down day on low volume. That's accumulation. Those foot prints of money were telegraphing price heading higher. MACD showed no weakness. RSI shows overbought and that's where your strongest up moves come from, an overbought RSI when in conjunction with volume. Will we see a correction? We might. But rather than get caught up in the emotion, learn to follow price, volume and money flows. Watch your pivot highs and lows. Use them to help with entries and stops. Learn how to set profit targets and reward to risk ratios. Then all you have to do is let the market show you what to do instead of you trying to guess what it is going to do. Just some food for thought.