Let's talk about the short-term overbought situation, because it is an odd one.
You might have noticed that I keep using the phrase "a little overbought." Moreover, I have not, after three weeks of rallying, given you a date that I think the market will be maximum overbought.
Typically, coming off a low, such as we have, we get multiple consecutive up days. Many up days in a row where breadth is positive is what gets us to an overbought reading. But, you see, since this rally began, the market has not managed to have more than three straight green days for breadth.
Now, if we had had three-straight green breadth days, one red one and then another string of green breadth days, we'd be able to pinpoint a maximum overbought condition. But that hasn't happened either. For example in the last 10 trading days, breadth has been red four days. That makes us a little overbought. So instead of getting a look on the Oscillator, where it shoots straight up, we get all this up and down that we see. That's the same way we got oversold at the lows, a whole lot of back and forth while price kept having one day up and the rest down.
If the market were to show green breadth days for the next three or four days, we'd get overbought late next week. But will that happen?
Then there is the McClellan Summation Index, which is still heading up. It has a terrific cushion now. It would require a net differential of negative 5,100 advancers minus decliners on the New York Stock Exchange to halt the rise. Remember, there are approximately 3,000 stocks that trade on the NYSE, so with negative 5,100 you'd need two seriously awful days just to get it to stop going up, let alone roll over. But the same way such a number on the downside (i.e. positive 5,100) would make us oversold, this number makes us overbought.
Yet, the intermediate-term Oscillator -- the 30-day moving average of the advance/decline line -- is still not overbought. It's still tough to say when it will get overbought, but the earliest is the week of April 20.
The Investor's Intelligence bulls and bears barely budged with this week's reading. The bears still outnumber the bulls. Keep in mind, this does not encompass this week's rally, so I do expect to see a change next week. The American Association of Individual Investors survey will be out on Thursday morning, and I expect those day traders to have changed to a bit more bullish, as well. The four-week moving average of the bears was at 50% last week, so it ought to back off some in the next few weeks.
Not much has changed. I still think we should do a lot of ups and downs, as we work off these extreme indicators from a few weeks ago. I think it takes weeks to do that. Eventually, we'll see that sentiment shift, probably right when the intermediate-term indicators get back to an overbought reading. With the market a little overbought, I wouldn't be surprised at a pullback.
I did a short interview with TD Ameritrade on Wednesday if you'd like to watch.