A "good" overbought market?

Mid-week trading update: Last weekend, I pointed to the analysis by Simon Maierhofer, writing in Marketwatch, who highlighted a bullish "kickoff" signal in which the SPX rose for 1.5% or more for three consecutive days (see The market 2-step: 1 forward, 1 back). Such "kickoff" signals have seen higher stock prices 12 months later. So far, the market is roughly acting according to that script.

An overbought market
Two weeks after that "kickoff" signal, the market is overbought, which should be a cautionary sign for traders. However, such overbought conditions may be the start of a series of "good" overbought signals that accompany bullish thrusts. As the SPX approaches key resistance at about the 2000 level, the key test for the bulls is how stocks behave at these levels.

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