Sam Collins

Should You be Worried the Market is Overbought?

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Stocks closed lower yesterday as the combination of a stronger U.S. dollar, lower energy prices and mixed signals from the economy led a second day of weakness. 

Weekly jobless claims came in around where expected, but the leading economic indicators for October were at 0.3% compared to an expected 0.4%, and Q3 mortgage delinquencies reached 9.6%, up from 9.2% in Q2.

Energy and materials stocks were hit as were consumer staples. But health care stocks held their own following news that Nevada Democratic Senator Harry Reid had presented a health care bill to the Senate on Tuesday evening.

Within the first 30 minutes, the major indices hit their lows of the day, and the remainder of the session was spent taking back a portion of the early morning sell-off. But volume was low again as traders seem reluctant to make new commitments at the top of the market with just six weeks left in the year.

It was the worst single-session loss of the month with the Dow Jones Industrial Average (DJI) down 94 points to 10,332, the S&P 500 off 15 points at 1,091 (SPX), and the Nasdaq (NASD) smacked for a loss of 36 points, closing at 2,157. 

The NYSE traded just over 1 billion shares with decliners ahead of advancers by 9-to-1. The Nasdaq fared no better with volume of 737 million and decliners ahead by 4-to-1.

Crude oil for December delivery fell $2.12 to $77.46 a barrel on fear of a slow economic recovery. The Energy Select Sector SPDR (XLE) fell $1.31 to $57.13. 

December gold rose 70 cents to $1,141.90 an ounce, and the PHLX Gold/Silver Index (XAU) rose $1.17 to $165.85.

What the Markets Are Saying

On Fridays, I usually give a summary of our indicators and an overview of the market.

In the past week, I've been noting that our internal indicators are overbought. But none of them actually issued a sell signal until yesterday when the slow stochastic on all three major indices hit the red button, and Moving Average Convergence/Divergence (MACD) will do the same if the on-balance selling continues for several more days.