Six Up Days and Maybe We're Getting Overbought?
Let's look at my favorite indicators to see where the S&P stands going into Fed day.
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You know by now I hate these long streaks that we get in the market—up or down. Nasdaq took a breather on Monday but the S&P did not and is now at six straight green days and counting.
I do think we will be back to a short-term overbought condition mid to late this week. It’s the math (of course). For the next four trading days, the ten-day moving average of the advance/decline line will drop three days of red numbers. But after that, we start dropping solidly green ones. Here’s what the next four days look like for the numbers we’re dropping.
Keep in mind, the exact day is not what matters, but the time frame. And after this, it’s nothing but positive numbers to drop starting next week. And that is what tells me we’re heading into an overbought condition.
(1260)
75
(318)
(1470)
As we head into the remainder of the week I will also show you how if I walk Nasdaq up another one thousand points from here (17600 to 18600) the Momentum Indicator stops going up on Thursday of this week.
And then there is the McClellan Summation Index. It is currently heading up (bullish). It currently needs a net differential of -2100 advancers minus decliners on the NYSE to halt the rise (this is a decent cushion). However, should breadth be positive in the next two days, that number will rush up to -4000 (or more), and once we get to that level, we are short-term overbought.
But what about the VIX? The VIX was green on Monday, along with the S&P. I might rationalize the green VIX because we are a few days ahead of the Fed, but away from that, the VIX is still at a higher low. It need not hold that line; the line is just to show you the higher low. The good news is that the lifting of the VIX also lifted the Daily Sentiment Index (DSI) for the VIX to 23, so it is no longer a teenager.
If that wasn’t enough, the put/call ratio fell to .81 on Monday. On its own .81 is neutral but I would point out it is the lowest reading since September 3rd. All of this leads me to think we should expect a bout of volatility next week, as we head into the end of the quarter.
But let me point out that the number of stocks making new highs is still climbing, with Monday’s reading at 415 on the NYSE. And Breadth is at a new high.
I know the Fed is Wednesday and I must confess I have no idea if the market would like 25 bps or 50 bps. In fact I am certain there will be much discussion about what is good and what is bad over it. I think I’ll just watch the indicators.
