With the market churning below resistance in the $107-108 range, I continued to short extremely overbought stocks today.
Yesterday I mentioned shorting PSDV and that stock behaved nicely today going down 7% from yesterday’s close. PSDV was a pure “RSI 93 trade.”
Today I shorted FFBC at $12.40 and MPG at $2.60. Both of these stocks are at resistance and are also very overbought. RSI on FFBC is at 88 and RSI on MPG is at 90. I typically find overbought stocks at resistance to be a recipe for a good short sale.I do want to point out that FFBC and MPG and not RSI 93 trades.
Another take away from today is that the market itself is quite overbought. SPY closed today with an RSI reading of 73. The last time the market was overbought like this was the beginning of August. We ended up having a light sell off and a burn off of the momentum before the market continued higher.
I never buy long positions when RSI on SPY is north of 70. I also typically only see opportunities to short extremely overbought stock before a momentum burn off period (RSI 93 trades or otherwise). A momentum burn off period can mean sideways action, a small pullback or a big sell off. But in all cases, I never want to buy before a momentum burn off period.
So right now I am just taking what the market gives me. This means shorting RSI 93 opportunities and stocks which are very overbought and hitting resistance (FFBC and MPG).
