Note: Helene Meisler will be on vacation for the remainder of the week. Her next column will appear Tuesday, Jan. 3.
Sure, the S&P 500 managed to get above the 200-day moving average, but did it feel "zippy" to you? On a statistical level, it was lacking.
Let's begin with breadth. Thursday the S&P tacked on 10 points, and net breadth on the NYSE was at plus 1500. Friday saw the S&P rising 11 points, and net breadth was at plus 1150. That is unimpressive. (Notice that I am not complaining about volume, since the holiday season means it ought to be on the low side. The shocker would be if it were actually high.)
For all of last week, I praised the number of stocks at new highs, as this number rose beyond the October peak. But, on Friday, as the S&P crossed the resistance level that the whole investing world seemed to have been watching, the number of new highs contracted. That's what I mean when I say the action lacked zip.
The market still isn't overbought in the short term, and isn't even close to an intermediate-term overbought condition. Shorter-term, the market is set to reach maximum-overbought later this week. You might recall that, when I first started writing about the oversold reading near Christmas, I noted that a decline into the holiday would provide for a better setup. Well, that is not what happened last week – instead, the market climbed.
That means the intermediate-term oversold condition, which is still in effect, likely won't last very long -- and, as a result, stocks will get right back to an intermediate-term overbought reading by the second week of January. This is the result of a still-choppy market that makes for short-term ups and downs, with a seeming inability to gain any traction in either direction.
At this point I would have to say that a window remains open to more significant upside. Still, unless the market can add some zip with better breadth and more stocks making new highs, that upcoming overbought reading is more likely to keep alive the choppiness that we have seen since early November.
Just about a week ago I noted that copper had refused to break down, and I said I believed it could rally toward the $3.50-per-pound area. Well, the metal is quickly approaching that level now, so it is time to pay attention.
The fascinating part of the move in copper is that it came without the benefit of an advance in the euro, which hasn't typically been the case.
Speaking of the euro, I saw a survey that said bullish sentiment on it is now at 5%. While that is totally understandable, considering the circumstances in Europe, a reading of 5% bulls is extreme by any measure.
When I look at the euro's chart, I now see a channel sitting right in the middle. For any bears, a plunge toward $1.28 would be a "buy" signal, in my view. But, in light of the channel and the sentiment reading, I would not look for more downside to come on a trading basis. For euro bulls, a climb above $1.32 would mean a break through resistance from the previous spike high and from two previous lows, and it would also constitute a move to the upside of the channel.
I believe the euro bears are those who should be nervous in the next week or two, given the channel and the sentiment.
I'm off for the rest of the week (see note above), so here's wishing everyone a great holiday season and all the best in 2012!