We reached the short-term overbought reading midweek last week, and since then, the market has done an awful lot of churning up here. But, still, this isn't bearish.
It isn't bearish, because the majority of the indicators, especially the intermediate-term ones, are rising. They are not overbought. At some point they will be overbought, and I will find them problematic. When these intermediate-term indicators roll over, I become more cautious. That has not yet happened.
It also takes poor breadth to roll the indicators over. And breadth has only been red two days in the last 10. So that, too, would have to change. It would have to change enough to get the indicators to roll over. For example, the McClellan Summation Index is still rising. It would require a net negative 1,300 advancers minus decliners for it to halt the rise. And then it would need more than that to get it to roll over.
On the chart below, we have the Summation Index at the top and the S&P 500 at the bottom. Look at April. Do you see how the Summation Index was rolling over as the S&P went higher? That's a negative divergence.
Now look at July. It was not as glaring, but it was there as well. We have not seen that yet in this market. If we do, I will harp away, as I have a tendency to do. But on Monday, when the S&P was down nine points, breadth was positive.
Also, look at the overbought/oversold Oscillator. You see the overbought reading, but at both the spring and summer highs, we saw the Oscillator continue down while the S&P continued up. That was a negative divergence. Lower highs in the Oscillator with higher highs in the S&P are not good. That could happen again here, since we are far from oversold, but so far it's just working off the overbought reading.
I do remain concerned about the number of stocks making new highs. We should have well more than 100 new highs by now and we don't. The New York Stock Exchange had 56 and Nasdaq had 58. Those are not great numbers. But for now the number of new lows is staying low. I will become concerned when the number of stocks making new lows begins to rise.
It seems folks got concerned on Monday. Last week we had four straight days with the put/call ratio for exchange traded funds under 100%. Monday that indicator jumped to 180%. The total put/call ratio was 119%, the highest reading since late August.
So, for now I maintain that the short-term overbought has led to a pullback and then we should rally again. I will change that view if and when the indicators roll over or breadth turns sour enough to roll them over.