Not Ready to Be Bearish

 | Sep 16, 2011 | 7:00 AM EDT
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Once again, the can has gotten kicked down the road -- the central banks flew in with their red capes to save the day. My favorite line was from a CNBC guest, who said -- to paraphrase -- that this will stave off Greece's default for at least for a few months.

But, for now, the upward bias continues within the sideways range on the S&P 500. The market is still not yet fully overbought, and the McClellan Summation Index is still rising. Nasdaq cumulative volume finally made a higher high along with the index itself (more on this below). Sentiment was definitely not too giddy, either: The put-call ratio once again chimed in above 100% on the day.

I still believe that the S&P area of 1220 to 1230 will give the rally some pause, especially if it arrives as the market reaches an overbought reading.

Overbought/Oversold Oscillator -- NYSE

For those who prefer to find something to pick on regarding the rally, we can begin with breadth. Three days ago it was impressive, but it's been progressively less so for the past two days. Just look at the math.

โ— Tuesday: The S&P rose by 10 points and net breadth (advancers minus decliners on the NYSE) was approximately plus 1500.

โ— Wednesday: The S&P added 15 points and net breadth was plus 1500.

โ— Thursday: The S&P added 20 points, and net breadth was plus 1500.

So, you see, the as the S&P added more and more points, that static net breadth number carried less and less weight. This is not to say breadth cannot catch up. Still, on Aug. 31 the S&P closed at 1218, which is less than 10 points from here. Breadth would have to tack on approximately 2000 in order to make a higher high than on Aug. 31.

Cumulative Advance-Decline Line with S&P 500

If you want to be negative, then you can cite the Nasdaq having made a new closing high (since the decline in early August). Also, there were fewer stocks at new highs than there were the day before or, even, than there were back in late August.

Or you might look at what the Nasdaq McClellan Summation Index would require to turn back down, which would show you how extreme it has gotten. Some would refer to this as an overbought condition.

McClellan Summation Index (Volume) -- Nasdaq

For my part, I am not ready to be bearish. I believe stocks can easily back off from here and make another try higher sometime next week. If these negatives remain and sentiment gets too giddy then that would be an issue. But, for now, I am willing to wait until the market returns to an overbought reading and we're at resistance before fussing too much over the negatives.

Overbought/Oversold Oscillator -- Nasdaq

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