Skip to main content

Overbought and Underwhelmed

We're short-term overbought and, despite Friday's rally, the statistics were nothing to write home about. Now it's all eyes on the Fed and jobs.

The Market

We had one big up day for the indexes on Friday and everyone is a bit confused, because I said the market is overbought. It is short-term overbought. It is not intermediate-term overbought. It also has been red for three of the last four trading days.

In reality, last Friday’s rally had statistics that were nothing to write home about. Breadth was good, but not nearly as good as earlier in the week. Last Tuesday the S&P tacked on 61 points and net breadth was positive 2,210. On Friday, the S&P was up 93 points and net breadth was positive 1,660.

This does not make the market negative. It makes it overbought. For the short term. Should we manage to get a pullback — remember, we’re at three of four days red already — we can work that overbought reading off. Here is the Overbought/Oversold Oscillator for reference.

Image placeholder title

Then we have a day like today, which is more similar to last week’s down days. The indexes are down, but breadth is mostly flat.

If you want to get upset over something, then keep your eyes on the high-yield bond fund (HYG) - Get Free Report, which took a decent hit today. Tomorrow is the first day of the new month when this bond exchange-traded fund goes ex-dividend, so it is often down on the first day of the new month. For now, I would expect this to tag that black line around $72.50-$73 and bounce again. Should it break that line by a decent amount, I would find that bearish for the market overall. My impression is that it got to resistance (blue line) and is having a typical pullback.

Image placeholder title

Down below you can see the 30-day moving average of the advance/decline line –- a more intermediate-term overbought/oversold oscillator -— is not yet overbought. I can no longer call it oversold, as it was in early October, but the math behind the indicator tells me it should get the benefit of the doubt to get over the zero-line sometime this month. Should that occur, we’d be looking at an intermediate-term overbought condition around Thanksgiving.

For me to turn cautious on the market, as I did in early August, I would need to see breadth weaken, with the McClellan Summation Index halting its rise and stocks acting crummy. Right now, what I think we have is stocks have reached resistance and got short- term overbought and now we’re having a choppy market with some downward bias.

The wild card of course is the Fed on Wednesday and then the employment report on Friday. Obviously, that ought to make for a volatile week.

New Ideas

The chart of Baker Hughes (BKR) - Get Free Report continues to shape up. While I drew that line and it looks like a breakout, keep in mind there are layers of resistance to each through all the way up to at least $30.

Image placeholder title

Today’s Indicator

The 30-day moving average of the advance/decline line is discussed in full above.

Image placeholder title

Note: There will be no Q&A/Reader’s Feedback section today due to time constraints. I will, however, welcome your chart requests and this section will return tomorrow. Please send requests.

Dow is the Most Vulnerable to Profit Taking

Dow is the Most Vulnerable to Profit Taking

Despite the newfound focus on the Dow Jones Industrial Average last week, it turns out we may be seeing the last gasp of outperformance here.

How Hungry Is This Market?

How Hungry Is This Market?

Here's what I'd like to see happen with this rally -- I'd like it to show some FAANGs. Here's why -- and a look at Microsoft's chart, news highs and more.

Sloppy With a Chance of Rallying

Sloppy With a Chance of Rallying

Here's why I see another rally before the weekend, even amid the messiness, and a bump for Amazon.

Sloppy With a Chance of Rallying

We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.