Where's the Party for S&P Nearing 2500?

 | Sep 14, 2017 | 6:00 AM EDT
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amzn

,

XRT

Where was the excitement about getting so close to 2500 on the S&P 500? Gosh, I thought for sure we'd have a countdown clock or something. Alas, it was almost there at the bell but fell short by mere points. Perhaps on Thursday the S&P will do it.

And wouldn't that be interesting? We are back to an overbought condition. Remember that the Overbought/Oversold Oscillator is based on the 10-day moving average of the net of the advance/decline line. Therefore, we look back at the last 10 trading days to see what numbers we are dropping. For eight of the last 10 days, there are positive numbers being dropped. Here is the list of numbers we're dropping beginning Thursday.

Now look at the chart and notice there is a lower high in the oscillator on this higher high in the S&P 500. Unless the breadth of the market is far better than +707 tomorrow -- that's the number we're dropping so we'd have to see a far better reading for the oscillator to make any more upside progress -- the lower high is likely to remain intact. That's how we know we're overbought. 

Add to this the fact that two days ago I praised the number of stocks making new highs, and yet in the last two trading days we have not seen any more upside. In fact, both the NYSE and Nasdaq have 100 fewer new highs on their boards than on Monday.

As if all this is not enough (!), there was another sub-100% reading in the put/call ratio for ETFs on Wednesday. That makes two such readings in the last three trading days. There is no steadfast rule that says "X number of days makes it negative," but it tells us the short-term sentiment has gotten a bit giddy.

Yet as noted yesterday, with the Investors Intelligence readings showing bulls under 50%, it's difficult to be too bearish. It's more about a market that's gotten overbought with complacency showing itself again.

Just prior to my vacation in late August, I made the point that everyone hated retailers and loved Amazon (AMZN) and that in the past few months we had actually seen the S&P Retail ETF (XRT) outperform Amazon. XRT is now at resistance (+10% from late August) and I see lots of love for the group. A pullback from here would set up a right shoulder of a head-and-shoulders bottom, so it's hard for me to love XRT right here (another sign of overbought-ness).

Finally, as a follow-up to Monday morning's column on currencies, there truly is nothing like price to change sentiment. All the currencies have backed off quite a bit and the buck has rallied. The Daily Sentiment Index has backed off as well. The euro was 93% Friday; today it is 73%. The yen was 95% Friday; today it is 72%. And the dollar, which was 7%, is now 29%. None are extreme but we can clearly see the shift is on.

For more market analysis from Helene Meisler, sign up for Top Stocks, published five times a week.

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