Buy or Sell: Silver and Treasuries?

There’s very little to report from the broad market this week because precisely nothing happened since we last spoke. Our sell call went out two weeks ago, and we stood 50 Dow points higher at the beginning of the day than we did then, with not a whole lot of movement achieved higher or lower along the way. Volume, of course, has been negligible during this same the period, a phenomenon that should come to an abrupt end now that the holidays are over. The coming week’s trade, including today’s bull run, should prove decisively which way we’re headed for the near term.

That said, there have been developments worth reporting, foremost among them a condition that persisted for the entire month of December. Believe it or not, the S&P 500 traded in overbought territory every day this last month. That is, price action on the index remained more than one standard deviation above the 50 day moving average for the entire period, a condition that most observers agree constitutes ‘overbought’.

What Does it Mean?

Possibly nothing. There’s not a lot of correlation between stocks, or even whole indices, trading in overbought territory for extended periods of time. That said, it’s certainly not prudent to be a buyer at this stage. If the market remains overbought for another week or two, maximum, there will very likely be some sort of retreat that brings both price and sentiment back to historical norms.

As far as shorting the market goes – as we recommended in our last missive, Short Bunny – the overbought data adds a few more pounds to an already weighty short-sell argument.

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