You can feel it all around you, can't you? Folks are slowly warming up to the market.
After all, breadth has been terrific. Do you know that six of the last eight trading days have seen positive breadth? Now, I don't think folks are too bullish, but they are certainly friendlier to the market than they were a week ago, or even after Monday's give-up. Nasdaq has been up for three consecutive days. It hasn't done that in two months. It hasn't had four-straight green days since early September. That's four months. So, you can imagine if we get one more day tacked on to the upside, that warming up is going to get louder.
Then there is the S&P 500. Sure, it is up 100 points in a few days, but it has not had back-to-back up days since Dec. 20 and 21. That's nearly three weeks. So, here, too, if we can string together some more green days instead of "Don't fight the Fed," I expect we will hear "Don't fight the tape."
As I have noted almost daily since the calendar turned to 2023, breadth has been leading the way. Tuesday's action took it up to the early November high (the equivalent of the S&P being at 4100 now). That means the McClellan Summation Index continues to work its way upward. It now needs a net differential of negative 3,800 advancers minus decliners on the New York Stock Exchange to halt the rise. That's a great cushion but at negative 4,000, I consider the market overbought.
Using my own Oscillator, it will be overbought by Friday of this week with a window between Friday and Wednesday; that's because of all that good breadth we've seen. If breadth is positive Wednesday and Thursday this week, then, as we head into Friday, we'll have eight of 10 trading days with positive breadth, which is what would make the market overbought.
And should we get that set up, it would signal a pullback in the market for next week in my work.
So far, the resistance noted on the various charts from Monday's column is still in place, so the market is still testing those levels, although the bonds backed off (rates went up) the line. The consumer price index report on Thursday seems to be what everyone is focused on. I believe the last few CPI reports the market was down heading into them. If we rally on Wednesday that, too, would be a change.