For the past nine trading days, breadth on the New York Stock Exchange has been positive. That is generally a good thing. I for one tend to applaud good breadth. It has a positive effect on the indicators I follow.
But the Overbought/Oversold Oscillator I use is based on the 10-day moving average of the advance/decline line. That means that we look back 10 days to see what numbers we are dropping. When we drop a long string of negative readings, we are oversold. And a long string of positive numbers means we're overbought.
The thinking is, since this is a momentum indicator, it's hard to replace a long string of negative readings with more negative readings or positive readings with more positive readings, thus at some point we run out of momentum in that direction. Since Tuesday is the last day we drop a red breadth day on the 10-day moving average of the advance/decline line that makes us overbought midweek this week.
We did see the Fear and Greed Indicator push back up over 80 on Monday. It was just over 90 right before Thanksgiving. That was just before we got the two-day whack in the market.
Back then, we also had the Daily Sentiment Indicator (DSI) for Nasdaq push up to 91 -- the S&P got to 89. And the Volatility Index fell to 8!
Monday's DSI reading for the S&P was 85. Nasdaq's was 83. And the VIX is at 19. I imagine, should we end up with another up day, these will be even closer to 90 for the stock indexes and perhaps under 15 for the VIX, although it is quite rare for a DSI reading to retreat back to single digits once it has been there. More often than not it makes a higher low.
A reading pushing up at, or near, 90 as we get short-term overbought should lead to a pullback. This is especially true when we look at the VIX, which has found "support" in the 11 to 12 zone almost every time this year.
Please notice that I am refraining from the anecdotal commentary, where so many are now calling for melt ups. My view on melt ups is the same as it is on crashes: They are outliers, and anyone calling for one is looking for attention. Call it more upside, call it more downside, but stop using click bait headlines!