The overbought reading has now given us a second day of pulling back. Does it feel like a big ho-hum to you? Does it feel like there is not much panic? Does it feel like there is not much selling?
Compare that to three weeks ago. The S&P 500 came down 100 points (it is now down 70 since Thursday's close) in a hurry and the put/call ratio zipped right up to readings of 1.21 and .99. Monday's put/call ratio was .83. And that is how we know folks are more bullish now than they were a few weeks ago.
We also know there wasn't much selling, because despite breadth being worse on Monday than Friday, the net differential on volume (up minus down) was significantly better Monday than Friday. This is just one example of the change in sentiment to me.
But that breadth has been poor for the second-straight day means that the McClellan Summation Index stopped going up. It will now require a net differential of positive 800 advancers minus decliners on the New York Stock Exchange to turn back up. Sure that's within reach, but remember last Thursday's big 60 point rally in the S&P saw only positive 1,280.
My experience is that we rarely go straight down after such a run. We tend to do more chopping about and trying to rally again, so let's not be shocked if the market has another rally. It would be unusual if it didn't.
You know what did rally, and did so strongly? The almighty dollar. And folks took notice. That is quite a move for the dollar to be up 2% in a matter of days. It is now at resistance, so I would expect a bit of a rest, but in the weeks ahead I do think it jumps over that line. Maybe if it gets over that lower line folks will take notice. Usually once everyone is suddenly concerned about the strong dollar is when we have a "Realization Moment." That's when everyone realizes why the market has done what it's done and in this case they could be pointing to the strong buck.
In the meantime the short-term Oscillator is coming down, but take a look at the intermediate-term Oscillator and you can see it has some room to fall. I do not expect this indicator to get overbought until about a week from now.
Also take note how it usually mills around at the overbought reading for a while before it heads down toward an oversold condition.
This indicator says even if the market rallies in the next few days we shouldn't get too comfortable.