Some Perspective on "Overbought"

By Lawrence G. McMillan

One of our signature sayings is “Overbought does not mean ‘sell’.”  But what does it mean?  In this article we’re going to explore the most common overbought condition that occurs in our indicators – those of the breadth oscillators.  

In addition, other indicators that generate clear overbought or oversold (“Oversold doesn’t mean ‘buy,’ either”) conditions will be discussed.  Most recently, these overbought conditions – in addition to the breadth oscillators – have included several “distance from the moving average” measures, the rolling 500-day moving average of the Standard & Poors 500 Index ($SPX), and the oscillator differential.  But it is the breadth oscillators that are the primary subject of this article.

Breadth Oscillators – Background

As is usually the case, we give the background to the indicators or formulae in an article, so that it can be understood by new subscribers or by traders reading the issue as a stand-alone...  

Read the entire Some Perspective on "Overbought" article (published 9/27/13) by subscribing to The Option Strategist Newsletter.