Two of my sensitive indicators of the market becoming extended are T2108, which was nearing a nose bleed level of 80% and the fact that major stock indexes this week have been floating above their 4 week averages. Media pundits on CNBC opined that the news about China’s plans to take over Taiwan was the trigger. However, it is not the news itself but the market’s reaction to the news that provides us with an indication of its psychology. The market was ready for a reaction after the multi-week rally. This weekly chart of QQQ shows that the low of this week’s bar is still above the rising 4 week average, currently= 397.63. Usually a stock or index will come back and kiss the 4 week average during an advance after a gap week. I would be more concerned if QQQ should close this week below its 4 week average (red dotted line). DIA, SPY and IWM show the same pattern, see charts. Floating above the 4wk is less problematic at the beginning of a move up. Why advancing securities tend to climb the rising 4 wk average is a mystery to me.
