It was an interesting day in the market, because the down and outers couldn't keep it going and the Group of Ten couldn't keep going, either. In the end, we saw very little buying or selling. Which means the indicators did not change much, if at all.
But I was asked where do we stand in terms of the intermediate-term indicators' overbought reading. Keep in mind that the majority of the indicators I use are based on various breadth measures, which means it would be hard for them to be overbought.
Take the 30-day moving average of the advance/decline line. That's the blue line on this chart. I have paired it with the Russell 2000 and it seems to line up well with it for the most part. Is it oversold? It leans that way. The math says more choppy than oversold though.
Or take the Volume Indicator where we look at upside volume relative to total volume. The first thing you see is how bad May was for upside volume. I realize if you match it against the S&P 500, it makes no sense, but once again, if we understand that the rally was so narrow, the chart makes a lot of sense.
It leans more oversold than not.
If we look at Nasdaq's Hi-Lo Indicator (red line) we see it has been rising with the move upward in the big cap indexes. It hasn't rolled over yet. Is there a divergence in that it is nowhere near the high in February yet the underlying index (Nasdaq) is higher? Yes, but how many different ways can we show the divergence?
So you can see, when it comes to breadth indicators, it is hard to say the market is overbought. We really are dealing with two different markets. It's why I keep thinking we should see the laggards play some catch up, yet they only manage to do so for a day before they give it up again.
Speaking of laggards, the semis were red again on Monday. That means they have now underperformed Nasdaq, and the Invesco (QQQ) , specifically, since before Memorial Day. It's hard for me to imagine this ratio will go down in a straight line but if you believe the semis are leaders, this could mean the summer might be difficult for the upside for tech.
In terms of the shorter-term Overbought/Oversold Oscillator, it is difficult to say this is overbought or oversold when both the New York Stock Exchange and Nasdaq sit at the zero line. When it comes to price the indicators lean overbought but when it comes to the breadth indicators that I use, they don't.
I keep thinking of the market like the supply chain disruptions we've had since Covid. There are shortages of stocks that go up and there seems to be too many of stocks that don't. Someday we'll get it back into balance.