Now that was more like it.
A continuation of the oversold rally that began just before Christmas still has a bit left in the tank. It even managed to change sentiment.
First, let's talk about the Overbought/Oversold Oscillator. You can see it still sits at the zero-line. My notes say it gets back to an overbought condition around Friday. How far up can the Oscillator go? That will depend on breadth the next two days. But if we get some positive breadth on Wednesday, this should finally move upward.
The more intermediate-term Oscillator, where I use the 30-day moving average instead of the 10-day moving average (used in the chart above) is still quite overbought as it mills about far above the zero-line.
On Tuesday breadth basically gained back what it lost on Monday, which means the indicators have barely budged. The McClellan Summation Index is still heading down. The number of stocks making new highs continues to contract. Yet, the number of stocks making new lows does not expand.
The S&P tagged 3,700 just about a month ago, which means we have resided in Chop-ville for the last month. That short-term uptrend line remains intact.
One thing that did change with Tuesday's rally was sentiment. Folks got decidedly more bullish, but that's to be expected. It hasn't changed the various moving average lines of the various put/call ratios, as most continue to be at higher lows than they were a month ago.
I do want to discuss Nasdaq's breadth, though. I rarely discuss it, because as you can see from this 20-year chart, it spent 10-years in a decline, followed by 10 years of sideways. Yet in the last few weeks and months, it has started to make higher highs, something we haven't seen in, well, decades.
I suppose we can say that this is a result of all that speculation we've seen in all those small cap stocks. It probably is some of that. OK, it's probably a lot of that. But I have been staring at this chart of small-cap value relative to small cap growth, which has gone nowhere since May. So far all it tells me is that it is in a trading range (the ratio), but if it ever cracks over that June high -- or if it breaks those lows at .44, it would be quite a change for the markets.
In any, event once the market is back to an overbought reading, I think we can get a proper correction in January.