The technology sector is very overbought
The XLKs gapped up after breaking through the $70 - 72 resistance zone and are very overbought. The last four times that they were this overbought – last July, August, October and again in February, a meaningful selloff followed. Look for some consolidation or short-term profit taking.
My definition of 'overbought' means that they are trading more than two standard deviations higher than their twenty day moving average. By definition, 95% of all trading should be within two standard deviations of the average. If trading is outside of this range, either to the upside or downside, then there is a significant chance that the short-term trend will revert.
If they do head lower there may be support around the $72 level because it was the top of the recent resistance zone.
My definition of 'overbought' means that they are trading more than two standard deviations higher than their twenty day moving average. By definition, 95% of all trading should be within two standard deviations of the average. If trading is outside of this range, either to the upside or downside, then there is a significant chance that the short-term trend will revert.
If they do head lower there may be support around the $72 level because it was the top of the recent resistance zone.
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