We got short-term overbought in the middle of last week. Last Tuesday, the S&P 500 closed at 3860. Today it closed at 3856. That is the overbought condition at work.
When the intermediate term is overbought and the short term is overbought, we can then expect the overbought condition to be bearish. When the indicators roll over, we can expect the overbought condition to be more bearish.
Instead, what we have is breadth stays steady on days the S&P is down. Once again, that’s the index movers — the FANG stocks are still in control of the indexes. But when they get sold, other names get some love.
I would like to cite a few indicators today. First, the Hi-Lo Indicator for Nasdaq is now 27. In other words, it has finally moved up. It spent almost all of October in the single digits. It has not been over .60 since the highs a year ago. Obviously, we’ll watch this closely for signs it is peaking/rolling over.
What is interesting is that the S&P has gone nowhere in a week, but Nasdaq has fallen -- yet the number of new lows has not yet increased. Sure, 200 is still a lot, but since Nasdaq’s peak a week ago, the new lows have not expanded over 200 ... yet. Again, that is another indicator I will focus on in the weeks ahead.
Finally, the Russell is up from a week ago, but you can see it is now knocking up against the still-declining 200-day moving average line. In August it popped over it, as it did in December last year, but each foray over it was short-lived. I suspect it stops somewhere between here and $190 on the IWM (IWM) - Get Free Report in the near-term.
I can just as easily see the market rallying after the Fed as selling off, so I wouldn’t be surprised at either. I am starting to suspect next week will be a bit more rocky than this one.
Let me note that the Energy Select Sector SPDR Fund (XLE) - Get Free Report has been green for 12- straight days. That tells me energy is stretched here. A bout of profit taking in those names should come as no surprise to anyone.
Just over a week ago, I highlighted the chart of Southern Copper (SCCO) - Get Free Report, and it is still shaping up to my eyes. I have drawn a line at 50 but there are small levels all the way up with $52.50 being the next and the gap fill near 54 another. But I still think it works.
The McClellan Summation Index is still moving upward. You can even see it now without a microscope. It will take a net differential of -4,600 advancers minus decliners on the New York Stock Exchange to halt the rise. That means weak breadth will do damage to the still rising indicators.
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Lockheed Martin (LMT) - Get Free Report is up too much for me to want to chase it. There is a next measured target around $500, so a pullback and another push up to the target is doable. Right now it feels quite late to me.
As someone who likes down-and-out stocks, of course I am asked about Meta (META:Nasdaq). For a short-term trade? Maybe. I am more concerned that there will be tax-loss selling into year end. But that would make this a candidate to watch in December for a rebound in 2023. Perhaps by then it will have a small base to make a case to buy it.