From Very Overbought to Very Oversold

Our overbought/oversold oscillators show the euphoria and the pain.  Investors - I would say mostly speculators - were feeling pretty HOT in February of this year as the market had just experienced one of the strongest January's in history.  We all know, so goes January, so goes the year, right?  Well, we still believe that 2012 will turn out at least as good as 2010 and 2011, and probably better, but when the rubber band gets wound too tight in one direction, then it has to go full circle and get too tight in the other direction.  So here we are.

Yes, the rubber band can be wound a little tighter, doesn't happen very often.  As you look back for the last two years (in the chart above), you can see that it can go lower, but at these levels, the odds are pretty good that the market is due some relief.  A short-term rally would be a very normal occurrence, but we haven't got the full relief in Psychology yet that we would like to see (as you can see in today's levels below).

So despite this very oversold short-term condition, we're still believing this time of testing and trial still has a little more work to do, and it will probably continue to bob and weave until the election results get a little more certain.  That is short-term stuff.  The long-term still says that Monetary and Valuation will be more than sufficient to keep the long-term bull market alive.

Don Hays

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