Understanding Overbought Conditions in Today’s Market

What tends to happen of late is that instead of seeing a pullback on the daily chart to alleviate the market of overbought conditions, what tends to be the case is that the market will sell-off intraday and simply buy the dip later on, some times as early as after the first hour of trading. 

What this often does for traders is making them think that the market has yet to pullback, when in fact it has. Instead of pulling back on the daily charts, it works off the overbought market by simply gaping down 6-8 points and then steadily working its way back to break even or higher. All the while the typical trader stands on the sidelines waiting for some kind of entry they can feel comfortable with. 

That is exactly what we got today out of the market, and what we have been seeing for most of this year. 

It doesn’t mean that you won’t see any major sell-offs, or a string of sessions where the market heads lower, but they tend to be the exception than the norm. 

Today is no different than what I have described. While we will either finish slightly above or below breakeven, I would no doubt consider today to be a part of the selling that is essentially occurring under the surface. 

It is also why we are seeing less and less stocks participating in the rally. They will come back into the fold, but as the market pushes higher, these stocks have to pullback as well, and it doesn’t always happen on an intraday basis as the case usually is for the market. 

Just my thoughts and observation from today’s market and recent sessions.