I'm having an e-mail discussion with a friend about how overbought the market is right now. We've been tracking an indicator in TC2000, called T2108, which tracks the % of NYSE stocks above their 40 DMA. As far as I can tell, this indicator has never been over 88 (my data only goes back to 1987). Every time that indicator approaches the 80 level the market cools off, and the indicator falls back to its more normal range of 45 to 55. I doubt that this time will be different. T2108 currently sits at 82.92 . This reconfirms my belief that there will be a dip in the near future.
I've been thinking about a way to build a similar indicator using the Bollinger Band based %b indicator. A simple way to explain %b is that 0 means the stock is cheap (relative to it's own prior price action), 50 means it's fairly valued, and 100 means it's expensive. Of the approximately 700 stocks that I track, 82% of them are above the 50 level. I've never seen it that high. 36% of those stocks are above 1. That's insane! But it does show how much buying pressure there is right now. I sure don't want to short this market, but I will wait for the inevitable sell-off to find some long candidates.
