Just before the November presidential election, market folks had a mantra: Just wait until after the election -- then we'll have clarity. At the time I noted that, to these people, clarity did not mean an actual winner at the end of the election. Rather, it meant a green light to be bullish. We did get clarity, but we didn't get the green light to be bullish -- because, even after we got a winner, the "fiscal cliff" loomed.
I hear much of the same sentiment now, as well: Once we see a deal on the fiscal cliff, these folks say, we'll have clarity. They are not concerned with when the deal actually arrives, or with what the deal is, because they are certain it will occur at some point. Rather, they once again believe "clarity" means a green light to buy, and that it doesn't necessarily mean a thorough deal getting done.
Yet can you just see it all now? Let's say Congress manages to patch together a deal and the debt ceiling is not part of it. Won't we be right back to a lack of clarity until that issue is resolved?
Maybe we should call this the Roseanne Rosannadanna market -- "It's always something."
Before I get to the intermediate-term market indicators, let's talk about the very near term. The market is a little bit oversold, as it has been red for six of the last seven trading days. If the indices stay in the red for another session or two, that would forge a decent oversold condition -- and my Oscillator, which is based on the 10-day moving average of the advance-decline line, would reach a much "better" short-term oversold condition.
If the market comes down hard for the next day or two -- meaning an advance-decline line of at least 2:1 negative -- the just-rolled-over McClellan Summation Index would reach what's typically considered "grossly oversold short term." That is, indicator would need a net of plus 4,000 (in advancers minus decliners) in order for it to halt its slide.
If you want to be bullish in the very short term, you might even note that Friday's lower low in the S&P 500 was unconfirmed by Nasdaq and the Russell 2000, as the latter two hit higher lows vs. Thursday. In addition, there were fewer stocks making new lows on Friday than there were Thursday.
Now let's move on to the intermediate-term indicators. As mentioned, the McClellan Summation Index has rolled over. The 30-day moving average of the advance-decline line is slated to read as overbought later this week.
The Hi-Lo Indicator has rolled over now, as well. The Volume Indicator is still hovering at 54%, so unless Monday is a terrific day in the market, it is unlikely to make reach all the way above 55% -- which, assuming this, would make that a negative divergence, as well.
In terms of sentiment, recently I noted that the Investors Intelligence bulls, plus those seeking a correction, came to a ratio of more than 75%. I concluded that the market's upside would tend to be limited until that reading comes down. Well, this ratio is still above 75%, so we have to conclude that the upside remains limited.
The various moving averages of the put-call ratios are all heading higher, as well.
Finally there is margin debt. This number is now at $325 billion, which is the highest reading we've seen since January 2008. This is as of the end of November, so the indicator is not for near-term calls. However, look at the chart below. I think you can see that readings above $300 billion tend to mean the market is closer to a high than a low, or that there tends to be limited upside.
Still, notice that this number got above $300 billion in April of 2007, and stayed up there through March of 2008. This shows that such levels don't constitute a "sell bell" so much as a call for limited upside. The last time it was above $300 billion was for six months in 2011 -- a period that culminated with the August 2011 downgrade of U.S. debt.
So, while I would love to look forward to the New Year with better intermediate-term indicators, the only good news I can see is the upcoming short-term oversold condition.
Nonetheless, Happy New Year! All the best in 2013!