Asset Allocation

Behind the Numbers, with Gail Dudack

In the April 8 release of Direct from Dudack, her intermittent one-page report on economic events, Gail Dudack asked, “When is overbought good news?” In answering that question, she explains that she uses the NYSE 25-day up/down volume oscillator to help detect the nuances of a cycle turn. The simple explanation according to Dudack is that bull markets tend to get and stay overbought for long periods, while bear markets get and stay oversold due to persistent selling pressure. Dudack says the oscillator was unable to reach or maintain an overbought reading between April 2007 and January 2009, which obviously correlates with the bearish tendencies of investors in the face of market uncertainty. Since that time, however she has noted two short overbought readings–welcome signs of sustained buying pressure. The longer an overbought reading lasts the more bullish behavior it portends, which means the answer is: it’s good news now.–Robert F. Keane