“Time may change me, but I can’t trace time.”
When things get extreme on one end, it creates a vacuum at the other.
It’s like the last few weeks when everyone is buying stocks. No one wants them to go down or thinks they will, but inevitably one-way traffic leads to the opposite.
Stocks Are Signaling Changes
A few “strange” things happened on Friday that signaled changes.
The first was the red stick…in other words, sellers beat out buyers. This is new information when we are heavily overbought.
Then Monday came with an even larger red stick.
Next, we noticed that Tech stocks were extremely overbought.
The Big Money Sector Index shows a moving average of all Tech stocks seeing big buying. Historically, this doesn’t last long and a pullback shows up.
This activity is very similar to Health Care a few weeks back. We discussed what a crest looks like:
Lastly, the Big Money Index is falling. We have learned you don’t want to fight that trend. On Friday we noticed it started falling.
Bottom line – extremes happen and changes do, too. Pullbacks are necessary and healthy. This bull still has room to run long-term, but let’s make sure we aren’t living in a near-term vacuum.
“Turn and face the strange.”