Stocks are overbought but the trend is still up

09/15/2009 10:31 pm EST


Jim Jubak

Founder and Editor,

Markets always run to extremes both on the up and downside. And sometimes the extremes can be quite extreme.

Right now a number of technical indicators are saying that stocks are overbought. That means they're headed for a correction.

Some time.

But stocks that are overbought can get still more overbought and now technical indicators are also saying that the upward trend in stock prices remains strong.

In other words while there's a correction ahead it doesn't look like it's just around the corner.

Recent strength--on September 15 anyway--has come from energy stocks and especially natural gas stocks. Natural gas stocks have lagged the market and these shares are now cheap versus sectors that have been rallying along with the market as a whole.

Often that kind of rotation into cheaper lagging sectors comes near the end of  rally. And ordinarily I'd view this as a warning sign. But since the upward trend is so strongly driven by institutional managers who want to put money into stocks and show that they're more fully invested by the end of their fiscal years (in October in many cases) I wouldn't call this a sign of much of anything right now.
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