“One of the general rules of the stock market is that things will get as good (or bad) as they can get, then prices will start moving in the other direction. This is another way of describing “regression to the mean”.
This is the reason that we technicians have our indicators — so that we can get an idea when conditions have reached extremes that could cause prices to start moving in the opposite direction. One of the indicators I like is the Percent of PMOs (Price Momentum Oscillators) Above Zero because it is smoother and has less noise than other intermediate-term indicators.
The second panel on the chart below shows the PMO for the S&P 500 Index, which is the price index just above it. The bottom panel shows the percentage of individual S&P 500 stocks that have PMOs above the zero line.
As you can see, the indicator has recently topped at a very overbought level……”
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