Now it gets tricky. We are overbought, the most overbought of the year: plus 10 on the S&P's daily oscillator, the one I have banked on for years, and one that has always produced a pretty violent move down when it gets that high.
The industrials are way up, so is oil. But growth is way down, and far from overbought. It's hard to tell where the correction will come from, but it is also difficult to see how we can still have a big advance from here, given that overbought indication.
One area that I want to come down is oil.
I am looking for a decline in oil to leg into, particularly the ones that have zoomed so much without any chance of catching them other than in piecemeal fashion... I would like to see some of the industrials come in just enough to buy them without a total trashing, which would then convince people that this whole move was phony -- something they might do, given the 11th straight month of weak Chinese data we got last night. However, with this level of overbought it will be hard not to have a selloff that will freak people out, instead of drawing them in.
Much has to go right, and because it is earnings season it will be hard to thread the needle.
Nonetheless, it has to be threaded if you are going to make any money in this last quarter after we have come so far.
My thinking is that we have some sort of cathartic give-up in the high-growth names that makes it so they are totally sold out -- they aren't yet -- and some earnings weakness that gives us more companies like Alcoa (AA) -- FMC (FMC) and Ryder System (R) last night being prime examples.
But the keys will be the banks, the old pharma, the big industrials like Dividend Stock Advisor portfolio holding General Electric (GE) and yes, the price of oil.
It's a rough row to hoe. I think people will be freaked out by a drop of oil back to $45 and a sense that there's no progress in commodities while stocks like Eli Lilly (LLY) can get so easily crushed. I wouldn't relate the two, but the market regards fragility in one as fragility in all.
All I can say is that while the plus 10 overbought signifies that we have gone about as far as we can go without a correction, you have to view the correction as a chance to get in, not get out, and you can't be frightened out of stocks when it happens.