The market is now back to an overbought reading.
It's been a great move upward since we got oversold right before Christmas. Having spent December pinned to that 3,700 zone, the Santa Claus rally delivered.
Yet, look at that overbought reading on the Overbought/Oversold Oscillator. That's a lower high, quite a serious lower high.
We discussed breadth quite a bit last week (when don't we?!). But let's review. Monday's decline showed very little selling. Breadth was better in that 55 point decline than it was during the prior week's 8 point decline in the S&P. In other words we had good breadth in that one day whack; I viewed it as a positive. We had good breadth on Tuesday, too. Wednesday breadth started to wane and by Thursday it was a massive under-performer. So, as good as it was Monday, it is as bad as it was on Thursday.
Then came Friday, when the S&P tacked on 20 points and breadth was flat as a pancake. It's as if the market was book-ended last week with positive signs in the downdraft and not so positive ones in the updraft.
All that positive breadth, though was not enough to budge the McClellan Summation Index. Well it did budge. Shall I wait for you to get a high-powered magnifying glass so you can see it? That is not impressive.
You can also see the number of stocks making new highs, which was terrific on Wednesday for the New York Stock Exchange fell off a cliff as the week wore on. Again, that is the overboughtness. The bullish news is that there were zero new lows on Friday. I will continue to monitor new lows for signs of increasing, because that is bearish.
We were tracking the channel in the Russell 2000 fund (IWM) for a few weeks. It fell out of it and recaptured it but finds itself right back at the top of the range once again.
This time the S&P 500 joins it. I have been using that lower line with you for a few weeks, but now the upper line comes into play.
Even Nasdaq has developed a channel in the last two months. It too finds itself kissing the upper boundary.
Moving on to the sentiment side of things. There is definitely euphoria in the air, but what strikes me is that the put/call ratios are no longer pushing the lower limits, but now making higher lows.
The Citi Panic/Euphoria Model is literally off the charts.
But it is the much shorter-term Daily Sentiment Index (DSI) that I really want to highlight. The DSI for the Volatility Index came in on Friday at 10. It ended the day at 8, so it is now in single digits and single-digit readings are signs of extreme excess.
To that I can add the DSI for Nasdaq climbed up to 92 on Friday. Readings over 90 are similar to readings in the single digits: They are excessive and need to be relieved. The S&P is at 88 -- and these figures scream it's time for a correction.
