Do you realize that we have spent the last week going nowhere in the market? Last Thursday the S&P closed at 2,635 and today it stands at 2,642. That's how you work off an overbought reading when it is one that has surged to a higher high.
Since breadth has not been red very much it continues to be difficult to ascertain when we might be oversold again on a short-term basis, but at least the Oscillator is coming down. The 30-day moving average of the advance/decline line (a more intermediate term Oscillator) will not be overbought until sometime in February.
But let's talk about breadth. Wednesday saw the S&P rally nearly six points and net breadth was flat as can be. No that isn't a good thing but then we turn around on Thursday and the S&P is up 3.60 and the net breadth is +1,000. There is nothing to scoff at when it comes to those readings.
Now let's take a look at the McClellan Summation Index. It is based on breadth. Look at this indicator beginning last June as it sputtered and began its drift lower, with lower high and lower lows. It did not fully roll over and head down until September. That's what poor breadth looks like.
Since the market made a low a month ago there has been no sputtering when it comes to this indicator. None at all. It would still require a net differential of -3,000 advancers minus decliners to reverse it from up to down so there remains a decent cushion for a pullback should we ever get more than what we've gotten this week
At some point this indicator will begin to sputter (it always does). That will probably happen after everyone is back in the pool (they are all bullish again). I have had my eye set on the March time frame for the market to begin a retest since I think it is likely to take that long for sentiment to shift and the intermediate-term indicators to get overbought.
In the meantime the semiconductor stocks were the winners of the day and still they have not broken out over 1,275 on the SOX. Perhaps a move over that will get folks all bulled up again. But it seems to me that for now this is a resistance zone.
We saw the small caps outperform the large caps again on Thursday but there is still no higher high vs. two weeks ago. We'll monitor this situation. If we get weakness in the Russell 2000 we'll start to see weakness in breadth since the two tend to go hand in hand. For now though I continue to think we're still just working off that short-term overbought reading.