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Sell Something: Dow High Relative To Moving Average at Trader’s Narrative

According to the percentage of Dow (Industrial) stocks above their 50 day moving average, I’m paring back my long positions here. In one month’s time, we’ve gone from extreme oversold level of 10% - reached in mid-August - to almost hitting the other extreme (see graph below). That’s a very fast turnaround which we haven’t seen for some time.

The time to go long and push the envelope was when everyone was scared witless as the volatility jolted higher, the banks and brokerages were dumped and the put call ratios spiked to panicville.

When I asked rhetorically “Was That Capitulation?” (hint, hint).

Now is not the time to jump on the bandwagon for a quick win. I’m still bullish for the long term but in the next little while I think we’re in for a bit of turbulence as the market digests and adjusts. Plus, I don’t think the risk reward is justified now when you’re already sitting on a winning position to push it further from here.

Dow stocks above 50 MA september 2007.png

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7 Responses to “Sell Something: Dow High Relative To Moving Average”  

  1. 1 Aaron

    Nice chart. The straight line up at the end of the chart is a very good testament to the extremely rapid turn of events in the market over the last month. I am bullish long-term as well, but think we’re certainly due for a bit of a pullback.

  2. 2 Babak

    Aaron, yes it turned on a dime! But we didn’t have a pull back today :-)

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