None of the major indexes have rallied more than three consecutive days since early November. We are now at that point so if Monday sees an up day that will be a change in pattern from what we've seen for the last six or seven weeks.
Sure, any day can be a down day but I still think the market has an upward bias until early January. Then we'll reassess the indicators.
Right now the Overbought/Oversold Oscillator for the NYSE is sitting right at the zero line. The math behind it says it shouldn't reach an overbought reading until early January (that will be refined as we get closer).
Nasdaq's Oscillator hasn't even reached the zero line. In fact, a move up and over that level will be the first time it gets there in over a month. Nasdaq's Oscillator is similar to the NYSE but it steps a toe into overbought territory by the end of this week, rather than wait until the calendar turns.
The key for both of these indicators is how high the Oscillators get: Are they at a higher high or a lower high?
In the meantime, a big picture view still shows the overall breadth of the market lagging the S&P 500 badly. The S&P is at an all-time high and the cumulative advance/decline line isn't even over the early December high. That is a divergence that needs to be monitored.
The other big picture view is that the number of stocks making new highs is still hovering at the 100 mark while the S&P is at new highs.
But the flip side is that breadth has been good enough to turn the McClellan Summation Index upward, enough that you can put that magnifying glass in the drawer for the time being. It looks a bit stronger than the early December move because in early December it needed a net differential of net negative 1,100 advancers minus decliners on the NYSE to halt the rise and as of today it needs a net negative of 2,200 so the cushion is larger after three rally days than it was a few weeks ago.
This is why I say while the market is not yet overbought it gets the benefit of the doubt on the upside. Once it gets back to an overbought condition we'll reassess the indicators and see where they stand. Too much bullish sentiment isn't bearish on its own. It is bearish when breadth is poor and folks are too bullish. That's why we'll see how fast sentiment shifts on this rally and how well breadth fares.
In the meantime, over the years there have been interesting correlations in the market, some lasting longer than others. This weekend I noticed that the Philadelphia Semiconductor Index (SOX) and the U.S. dollar seem to have spent the last year moving in almost lock step.
There was a low in early March, a high in early April. Then a low in May and a giant sideways in the summer. This was followed by a big breakout in November and then nothing but sideways since. I cannot tell which is leading which. I would welcome any thoughts as to why they are trading so similarly. What I do know is that the Daily Sentiment Index (DSI) for the buck got over 90 in late November, which implies the dollar should move lower over time.
I am going to watch this relationship as we head into the new year to see if it holds.
Note: I am taking the remainder of the week off. Wishing everyone a very happy, healthy and profitable New Year!