A Jumble of Indicators

 | Dec 07, 2011 | 6:00 AM EST
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I have been discussing the upcoming overbought reading for a few days now. While I do not want to belabor that point, I do want to be sure we're all aware that the market is set to reach the maximum-overbought level Friday, according to my oscillator. The Nasdaq Momentum Indicator, meanwhile, indicates that index will reflect an overbought condition by Thursday. Do not take these as perfectly timed conjectures; rather, take them as an area that points to late this week -- one that about coincides with the European Union summit, which is set for Friday.

The market saw even more cross-currents Tuesday as it chopped about at resistance once again. The index put/call ratio chimed in at 92%, and typically a reading under 100% implies a down day is coming very shortly. The last time we saw this indicator come in under 100% was Nov. 18, or the Friday before Thanksgiving week -- which, I would remind everyone, wasn't great to the stock market.

Of course, if you want to muddy the waters further, look no further than the put-call ratio on the CBOE Volatility Index (VIX), which was an incredibly low 13%. Typically a reading this low is bullish for the stock market, as it means too many are betting on a higher VIX. The last time this number was comparable was in late June, just prior to the early July surge in the stock market.

Therefore, I suggest we step away from the short term and look in on the intermediate-term indicators. As I noted on Monday, the McCellan Summation Index did finally turn upward, but it is quite far away from the early November highs. I would have to assume that if the S&P 500 managed to break above 1265 and to make a run toward the November high of 1285, this indicator would flash a lower high. Let me also note that, should we see one decent down day, the trend -- which is currently a tentative upturn -- would head right back down again. The good news here is that, at this time last year, this indicator took some time to get in gear (circled on the chart).

McClellan Summation Index

The 30-day moving average of the advance-decline line is still in overbought territory or, at least, it is far from being oversold. I get asked all the time when it might be oversold again, and that still remains elusive.

30-Day Moving Average of the Advance-Decline Line

The high-low indicator is heading upward and should continue to do so for a few more days. However, the number of stocks making new highs is what needs to be monitored closely. As indicated Tuesday, there were more new highs, but only by a hair. The S&P's intraday trip up to 1265 Tuesday did not see as many new highs as did Monday's comparable move. On the NYSE, there were 75 stocks making new highs Tuesday, and 174 in early November. So ask yourself this: If the S&P managed a rally of 25 points up to 1285, do you believe we could see more than double the number of new highs? That seems doubtful to me right now.

Number of Stocks Making New Highs -- NYSE

The major bullish factor is that the potential head-and-shoulders pattern is still evident in the chart of iShares Barclays 20+ Year Treasury Bond (TLT).

iShares Barclays 20+ Year Treasury Bond (TLT)

In sum, the picture is still unclear as the market remains at resistance while heading toward an overbought reading.


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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