Yesterday the DOW rallied hard and so did the Nasdaq as we saw follow-through Monday from Friday’s rally. However, now all three market averages are overbought on their hourly charts. Take a look for instance at the S&P 500’s hourly chart.

Notice the RIS indicator on the bottom of this chart went above 70 yesterday for the first time since the S&P 500 peak earlier this month. The hourly stochastics are now overbought over 80 at their highest level since right before the market dumped before the Fed meeting.

What does all of this mean?

Many people are expecting the market to completely rip after yesterday’s rally, but these indicators suggest that the market is more likely to pause here before going higher or is in fact going to drift and dump again before the end of this week just like it did during the Fed meeting week. If the market was really a bullish as some say it would be gapping up and soaring now and it isn’t this morning.

In my view, the overall trend since Labor is sideways to down so I think it’s best to stay cautious on the market. I’m watching four Nasdaq stocks that looked bullish before the open on Monday. All managed to go up yesterday, but I want to see if they can rally hard today. Today’s action and tomorrow’s open will be very important to determine what is really going to happen in the markets for the coming month of October. So far all we have seen is the market retracement 1/3 of its losses since Labor Day. It still has more work to do for the bulls to truly get back in charge. Silver and gold firmed up a bit yesterday.