As the Beat Goes On, Here's the Warning Sign I'll Be Watching For

On Wednesday morning the market is in the same position it has been in for quite a while now. It is enjoying a very strong uptrend, is becoming overbought and extended, fundamental issues like inflation and war have no impact, and the bears are tearing their hair out over the irrationality of the action.

Probably the most compelling bearish argument right now is that "we are due" for a pullback. Markets don't go straight up forever, and this one is certainly hitting some lofty levels.

However, the big question isn't whether the overbought conditions will eventually correct but how that may occur. It is unlikely that there will be a sudden collapse unless there is some dramatic, unforeseen news. The market has been too technically strong for too long, and that will help to provide support and dip-buying.

The more likely scenario is rotational action and some choppy trading. Yesterday, for example, we saw some better action in the biotechnology sector which has been a laggard, while oil, commodities, and other leadership groups were weaker.

My primary advice recently has been to avoid being sucked into the prediction game. Stay focused on the price action in front of you and react as conditions change rather than try to anticipate what might happen.

Typically the biggest danger in a market like this is a sharp intraday reversal. I will be watching for a shift during the day and then lower lows that trigger more selling. I'm not predicting when that may occur, but I will be watching for that sort of pattern to eventually cause a sharper selloff.

At the time of publication, James "Rev Shark" DePorre had no position in the securities mentioned.