Still Overbought as We Head Into Fed Day

The Market

Is everyone sitting around waiting for the Fed? I’m not even sure knowing what the Fed will do or say—and the saying is probably the more important part—I would know anything more than we know right now.

The market continues to work off the short-term overbought condition that developed late last week. The DSI on the VIX got to 15 (it is now 18, so not a big rise), which coupled with the overbought condition, signaled to me that we were due for a pullback.

I don’t have any strong feel for whether or not the market will rally on Fed Day (Wednesday), but I still think it has not worked off enough of the overbought condition. If we can stay down or at least sorta down the way we’ve been the last two days, then I think we’d get back to a short-term oversold reading by next week. If you are looking to trade the market, that might be the best way to look at it.

It would be helpful if the intermediate-term indicators were oversold, but they are not. It would be helpful if they were overbought, but they are not. As we saw in yesterday’s missive, the 30-day moving average of the advance/decline line has been hovering either side of the zero line for two months now. Right now, it looks to me as if it is due for another short trip up and over the zero line.

In order to get to the kind of intermediate-term oversold condition everyone would like to see, we would need to see breadth persistently weak for weeks on end, and we just haven’t seen that, thus the sloshing back and forth.

I will end with two points. The first is that the ISE equity call/put ratio jumped to 2.75 today. That is the highest since October 31^st, which was two days after the last Fed meeting and the beginning of a pullback. The moving average is in a different place now, but it does tell you most are probably looking for a year-end rally.

The other tidbit is that the Japanese Yen’s DSI is at 10. We have not discussed the move in the Yen much, but there are many who are quite focused on it. I will just note that there is a measured target around 158-160 on Dollar/Yen, so I would not be chasing it up here.

New Ideas

JP Morgan (JPM)  took a big hit today. There was a time I would have looked for big follow-through through thinking this was a top, but these days I will simply note that if it breaks this 290-295 area it will have made the first lower low since July and considering the Bank Index made a new high last week and JPM did not, I do think this would be a big change.

Today’s Indicator

The McClellan Summation Index is still heading up. But it will only take a net differential of -400 advancers minus decliners to halt that rise. So it’s fragile.

Q&A/Reader’s Feedback

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I have no idea what T1 Energy (TE) does, but I wish someone had asked me about it when it was building that base earlier this year. It is definitely no longer the type of chart I can get on board for, and there is a next measured target in the 7-7.25 area. However, if it were to correct as it did in October and November again, I would get interested in it.

I have been bullish on  (XBI)  for months (I have often noted that it has a somewhat similar chart to Alcoa, just an uptrend that is chewing through resistance). I think it is a bit tired up here, and I would love to see it come back and retest that uptrend line. It makes for a better risk/reward because if you buy at the line and it breaks the line with oomph, then you know you are wrong.

Abbott Labs (ABT)  looks like a big top if it breaks 120. I suspect, unless it breaks it on a gap down, it will bounce from that 118-120 area just due to a short-term oversold condition. But I would stay away.