The Market Is Stuck in Neutral but an Overbought Reading Could Be Near
Let's look at the indicators to see if there's any fear in this market.
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Take a look at where the S&P closed each day this week, because if you did, you would think there was a whole lotta nothing going on.
Monday: 6735
Tuesday: 6735
Wednesday 6699
Thursday: 6738
It seems to be stuck in that mid-6730 area. Of course, we closed at 6740 on October 6th so we’ve basically had nearly three weeks of chop with that one scary down day pushed in there.
Yet in that time, we’ve seen all those quantum, metal, storage, alternative energy, uranium stocks, etc. go parabolic, come back down to earth, and bounce. So there has been a lot of action under the hood.
I would love to tell you that Thursday felt as if there was a lot of action under the hood, but I can’t. Sure, energy finally rallied, but consider that a month ago, we saw the drugs rally with little follow-through. They got 2-3 days before the buying was exhausted. I think energy can rally some more, but to be fair, stocks like Exxon and Chevron did not close great. Quite frankly, neither did EOG Resources. But at least here I can see a rally to resistance around 114.
Breadth was good, not great. But one indicator that did change is the Overbought/Oversold Oscillator. Well, the NYSE’s did. You might recall I said we came into the week short-term oversold and that I expected, should we pull back midweek, I thought we’d rally again. So, I don’t want to be Debbie Downer about the Thursday rally, but so many stocks sat it out.
In the meantime, the Oscillator is finally over the zero line for the first time since August. Yes, that long. My estimation is that it will be back to an overbought reading by Monday. Depending on what the market does on Friday, it’s possible that the Oscillator gets itself up and over those highs we had coming off that early August (well, really late July) pullback.
A positive breadth day ought to do it. A negative breadth day, and it’s dicey. Either way, it will be the first real overbought reading since early July (when sentiment got giddy and the majority of stocks peaked).
I realize next week has all the big-cap tech earnings and the Fed meeting, so getting overbought will be worth paying attention to. Will the overbought reading matter, or won’t it?
Finally, just to follow up on the sentiment discussion from earlier in the week, the NAAIM Exposure Number is now back to just over 90. This is the highest reading since August. So here is yet another sentiment indicator that disagrees with the notion there is fear in the market. If you are fearful, you don’t lift your exposure to the market to 90. I still think sentiment is complacent, not giddy, not fearful.
