Was it just a month ago that all the charts looked awful and everyone was bearish? Yes, I suppose it was, since the market made a low Nov. 16. Now my inbox is full of questions such as this: "Are you sure you still think the market will be overbought at year-end and that stocks will come down in January? The charts all look really good now."
Let me remind you that charts always look awful at lows and good at highs. If they didn't look awful at lows, why would folks be bearish? If they didn't look good at highs, why would folks be bullish at highs? In fact, maybe I ought to drag out my button that says, "If it looks great, it's too late."
As for the statistics, the number of stocks making new highs increased vs. the number in late November. That's the good news. The bad news is it's gone above late November's levels, so we need a new comparison -- and, regardless of this, we'll still be seeing negative divergences.
For example, the S&P 50 is trading higher than it was in early November, but there are still fewer new highs, as you can see on the chart. The real issue is for you is whether think a rally above the September highs will yield more than 495 new highs, since that is the next high-water mark.
In addition to that, the equity put-call ratio came in at 51%. This is the lowest reading since the 53% reading that came in for the September Federal Reserve meeting. Prior to that, it read at 48% in late April when the S&P was at 1400, on its way to 1275. Prior to that, in mid-March, it was at 48%. Great news here: In that last instance, the S&P milled around at the 1400-to-1425 area for two weeks before it headed down.
Of course, it is December, and it is options-expiration week, when the options ratios often get rather extreme as folks wind down their years. So perhaps it won't matter this year. For my part, I will stick with my view that the market will read as intermediate-term overbought come early January. If these divergences persist, I believe we will be in a situation in which folks will "sell the news."
Given gold's move Tuesday, I was asked to update my view on the metal. It will not surprise you that I am still not a fan of it. Where I would choose to sell would be a rally back to the underside of that broken trendline at $1,690 to $1,700 per ounce. The breakdown measures to $1,625-ish as its next stop.
At some point folks will forget about gold, or they will get so hysterical over the downside move that I will be interested in it again from the long side. Now is just not the time.