After days such as Thursday, when it seems as though nothing can go wrong for the bulls, it becomes my inclination as a contrarian to point out what wasn't so hot. So let's begin with a short list of some issues the market did not overcome Thursday.
First, the market is still overbought. You might even notice that the oscillator is at a lower high. This is now the second try it has had to achieve a higher high, and it could not do so. Keep in mind that I still believe it will take a series of attempts at the upside and lower highs before we can consider this an outright negative -- so, for now, the market is just overbought.
In addition, the McClellan Summation Index had gotten to an extreme Monday evening, in terms of what the indicator needed in order to reverse its upward course. From there we saw a 3% correction, which relieved the upside pressure. As you can imagine, Thursday's rally brought the upside pressure back again, so the McClellan Summation Index now needs a net of negative 4800, in advancers minus decliners, in order to turn down. That's another sign that the market is overbought.
Still, in my view, neither of those issues is much of a problem for the market. They represent a short-term overbought condition, and not much more.
What was concerning was the Nasdaq's upside volume, as this ratio didn't even reach 90% of total volume in the ramp-up. That tends to be a sign of short-covering, rather than of true buying.
Then there is the resistance that exists here. The S&P 500 is in the neighborhood of its 200-day moving average -- which is 1275 -- and on the chart below, you can see the whole area is a resistance zone. Also, the put-call ratio's recent slipping under 100% has been a good tell for some backing and filling. The ratio fell to 91% Thursday.
Now for the good news: First, remember that the intermediate-term indicators are all still making higher highs, which is bullish. Higher highs in the indicators need to be tested at some point later on. The first test for the 30-day moving average of the advance-decline line will come next week, as that's when it's set to re-rally. If it fails to beat out this week's high, that'll be the first intermediate-term indicator to have failed the upside test. The intermediate-term indicators, therefore, are still bullish.
Then there's the number of stocks at new highs. This reading exploded Thursday on both exchanges, surging to levels not seen since July.
Both the KBW Bank Index and the Russell 2000 broke out, as well, so they are supportive of the market. Finally, upside volume on the Nasdaq might not have been so hot, but total volume on both the NYSE and the Nasdaq expanded to levels not seen since early October.
The market is into some resistance, and it's short-term overbought, but the intermediate-term indicators are still pointing upward. Again, stocks should back off or digest from here -- and then I would still expect the market to re-rally.