So I see the market went right back to fretting over the "fiscal cliff" Wednesday. It is amazing how, on Tuesday, the market didn't budge on "Plan B" comments from House Speaker John Boehner -- but on Wednesday the indices sank on that same piece of news.
As far as statistics are concerned, the S&P 500 lost nearly 11 points, breadth was flat and the Russell 2000 was flat. All of these are a plus. However, once again I want to move beyond the near term and focus on January.
Earlier in the week I noted that the intermediate-term Oscillator I use, the 30-day moving average of the advance-decline line, would reach an overbought condition on the first trading day of the new year. Let me reiterate that this doesn't mean the market must begin to go down on that first day. It means that, sometime around that date, stocks will be overbought, and once that happens any bad news tends to take hold much easier. This is not meant to be perfect in terms of timing but, rather, to give us a general time frame.
But it's not just this number. Please look at the Volume Indicator, which is currently at 53%. Typically an above-55% reading points to an overbought condition, and I expect it reach that level sometime in the next week. The key will be if this indicator makes a higher high together with the S&P. Should the S&P make a higher high as the Volume Indicator notches a lower high -- i.e., under the spring high, as indicated by the arrow on the chart -- that would be an outright negative divergence. Typically it takes a lower high in the indicator for the statistic to mean anything.
I also have my eyes on the 30-day moving average of the equity put-call ratio. At present it is heading down, which is bullish. However, notice that this reading never got extreme at the November low -- that is, the ratio did not peak above 75%, as it did at the two previous market lows. So it will get to that sub-65% level very quickly. In the next week or two, as we head into January, we'll watch for signs that the ratio will turn upward. If it turns up, it will move from the bullish side of the ledger to bearish.
In the next few days I will discuss other intermediate-term indicators and how they are shaping up as we head into the new year.
In the meantime, dollar-yen currency pair has been on a tear. Last week I noted that the base measured to the 83.50-to-84 level. It has now gone beyond that, having tagged 84.50 Wednesday. I did not notice this channel line until late Wednesday -- but, now that I see it, I want to show it to you.
The main point here is that the target has been achieved. The resistance is now obvious from that line. Also, the Daily Sentiment Index shows there are only 7% bulls on the yen, meaning nearly 93% are bullish on this chart. I'd start looking for a pullback.