I expect the market to soon be overbought, but due to Monday's Presidents Day holiday, that needs to be couched a bit. We'll probably be overbought by Wednesday, but the point of "maximum overbought" might not arrive until next Monday, Feb. 26.
There isn't much else to tell us that the first leg of the "W" pattern that I foresee (two "V" bounces in a row) is done yet, except that we're seeing the early stages of acceptance for this rally.
For example, the equity put/call ratio sunk to 52% on Friday. That's the lowest reading since Jan. 26, which was right near the market's recent record high.
What this has managed to do is finally -- finally! -- turn this indicator's 10-day moving average downward:
If we see a few more readings in the low 50s this coming week, this moving average will fall rapidly. It's supportive of an up market when it goes down, and it's not when it goes up. Let's see how fast it can move.
My guess is we see the market back off some this week, or maybe just chop. Call it "A Market Heading Into an Overbought Reading Coupled With Resistance Overhead." But in my view, there isn't enough complacency yet.
What does look interesting to me is the action in bonds and the utilities. The Utes, as measured by the Utilities Select Sector SPDR ETF (XLU) , had a big week last week -- rallying about 5%. That's unusual considering yields didn't exactly go down last week.
Now, if we look back at the mid-November to mid-December timeframe, we see that the Utes peaked in mid-November. They tried to reclaim that high again around Thanksgiving, and then one last time in early December. But all of this ended with two or three lower highs (the red line below) before the Utes gave way in mid-December:
But look at the 10-year U.S. Treasury yield during that timeframe. It stayed steady, barely budging off of its 2.35%-2.4% range (the red line below):
The 10-year yield broke out of the range in mid-December, but quickly came back and retested the breakout. The Utes foretold this move in rates.
Now take a look at the green box in the XLU chart above and notice that the Utes' recent up move has been outsized, especially when compared to bond yields (the green box in the 10-year Treasury chart above).
But note that despite two very hot U.S. inflation reports last week, 10-year Treasury yields are only at 2.87% as I write this vs. 2.85% in late January. That's more like a rounding error than bond yields reacting to strong inflation numbers.
I've said for a while that there was a measured target on the 5-Year Treasury's yield in the 2.55%-2.6% area. Even when the 5-year yield went over 2.6% last week, I thought it wouldn't last.
And now, I still think the move over 2.6% will be short-lived. Yes, the Utes were early predictors in November/December of bonds' move, and they're likely early again. But my sense is the bonds are due for a rally in the next few weeks -- probably enough to shake 'em out.