Working With Overbought Conditions

After the first day of the quarter surge, the market continues to consolidate around the 1370 area.

The trouble is that the severe overbought condition is not going away in this sideways churning as usual. While that's technically a positive and a significant departure from what we've seen in prior rebounds that later failed, it also makes it exceptionally difficult for the market to overcome resistance in the 1400 area with this condition getting more severe each day:

The overbought condition basically sets the stage for a significant reversal. While there are no guarantees and overbought markets can certainly get more overbought (especially in early stages of a new bull market), it does raise the level of risk in the risk/reward ratio if you're trading on the long side this week. At a minimum, this requires even the most bullish trader to tighten their trailing stops, be more selective in their entries, and take some easy and unexpected fast profits off the table. Which by the way, was exactly what you were seeing out there in some of the red hot areas of the market. See you tomorrow.