• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

More Overbought Than We Bargained For?

Let's check the indicators to see whether we could get more than an overbought correction.
By HELENE MEISLER
Jan 13, 2023 | 06:00 AM EST
Stocks quotes in this article: SPY, IWM

Note: Meisler will be away for two weeks and have limited email access. Her next column will be Monday, Jan. 30.

Since I will be away for the next two weeks, I thought I'd once again go through the short-term overbought condition and then what to look for while I'm gone for signs that this could develop into something more than an overbought correction.

My Overbought/Oversold Oscillator is overbought. I have said it would get there sometime between Friday and Wednesday (Monday is a holiday, remember). The first thing you can see is how high it is, like it is stretching off the page. Notice that is similar to the way it was stretching off the bottom of the page in late September. Notice that in late September we rallied and came back down -- that is what such an extreme reading should do -- in this case pullback and try again.

My Oscillator is based on the 10-day moving average of net breadth on the New York Stock Exchange. When we are dropping a string of negative numbers, we are oversold. Conversely, when we are dropping a string of positive numbers, we are overbought. Breadth has been so good (bullish) that eight of the last 10 trading days have had positive breadth. On the table below, you can see the math behind the indicator. To get more overbought on Friday, net breadth would have to be greater than positive 2,104. We have not had one day greater than positive 1,700 this week, so I suspect we see this Oscillator come down on Friday.

Then there is the McClellan Summation Index, which continues to rise (bullish). It now requires a net differential of negative 5,300 advancers minus decliners on the NYSE to halt the rise. That means we'd have to have back-to-back days with net breadth approximately negative 3,000 to get it to roll over. That's what makes the cushion good, but it's also what makes it overbought.

The number of stocks making new highs on the NYSE eked out a minor higher high to 108. It's better than earlier this week, but not as impressive as I imagined it would be when we first discussed new highs on Monday.

On the sentiment front, things feel a little bit frothy, but not over the top. The Daily Sentiment Indicator (DSI) for the VIX did fall to 12, though. The last time it was this low was the first week of November 2021. Before you think, oh no, understand that the DSI for Nasdaq and the S&P were over 90, then (now they are much more neutral at 34 and 32 respectively) and breadth was failing and new highs were contracting. That is not the case now.

But if I combine the low Daily Sentiment Index for the Volatility Index with the extreme overbought reading, I do believe we should get a bout of volatility next week. A pullback.

While I am gone, you can watch the new highs. If they start to trend under 100 for the NYSE and/or breadth begins to falter, that would signal more than a pullback. The other indicator I am watching is the ratio of the Russell 2000 fund (IWM) to the S&P fund (SPY) .

Recall that in November the small caps were terrible relative to the large caps (when the line is going down small caps are underperforming).

Since the calendar turned to 2023, it's been small-cap heaven, as you can see on the chart. Should this ratio peak while I'm gone, that would portend more than a pullback in the market. Each time this ratio peaks, the IWM is not far behind. Sometimes it is at the same time and sometimes it's about a week or so lag.

So that's what I'd watch for the remainder of January.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Investing | Stocks | Technical Analysis |

More from Stocks

As Fed Hour Approaches, Bulls Are Believers, Bears Are ... Incredulous

James "Rev Shark" DePorre
Feb 1, 2023 11:58 AM EST

One side has hope the Fed can tame inflation and set up a soft economic landing while the other thinks that expectation is ridiculous. Soon, we'll have some clues about what could play out.

McDonald's Solid Quarter Hijacked by Trouble on the Horizon

Jonathan Heller
Feb 1, 2023 11:30 AM EST

When the largest restaurant chain -- and 'Big Five' name -- talks you take notice.

What Do C.H. Robinson's Charts Say About the Economy?

Bruce Kamich
Feb 1, 2023 10:48 AM EST

The freight transportation firm reports Q4 earnings after Wednesday's market close.

I Like AMD and Lisa Su Even If the Stock May Need a Trim

Stephen Guilfoyle
Feb 1, 2023 10:45 AM EST

Do not confuse prudent risk management with my not continuing to like this name.

Look for More Upside in These 2 Stocks, Even Against a Challenging Backdrop

Bret Jensen
Feb 1, 2023 10:30 AM EST

Both names should see growth in 2023 and they're reasonably valued.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:10 PM EST REAL MONEY

    Fed Rate Decision

    Fed Lifts Benchmark Rate by 25 Basis Points, Sees ...
  • 12:27 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 11:48 AM EST REAL MONEY

    Watch Doug Kass on the Daily Rundown!

    In today's Action Alerts PLUS Daily Rundown, Doug ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login