Sentiment Indicators Show Overbought Conditions

THE TREND IS STILL UP ... As with most things in market analysis, the trend is the most important factor. The chart below is a point & figure chart of sentiment. There are two points that jump out. One is that the value of this indicator has exceeded its early 2006 which is a sign of market strength. The second is that the trend is still up. The first buy signal was given at 56 during July, and there have been six buy signals since then. [A buy signal exists when an x column exceeds a previous x column. Obviously, the first two or three signals are always the best]. Although the indicator is moving into overbought territory over 80, the trend is still up. The indicator would have to drop to 72 to give an actual sell signal. It would have to fall to 76 to suffer a downside three-box reversal. Although the sentiment indicator is entering overbought territory, it doesn't show any sign of weakening


click on to enlarge:
From Gary K: "Shorter-term, we do believe the market does have some issues...but these are only short-term issues so far. NEW HIGHS have started to lag the recent move. In other words, as the major indices continued higher over the past week or so, fewer stocks were hitting new highs...a short term divergence. On top of that, many leaders out of the box have been losing some of their sponsorship. The good news is other stocks have come to the front. On top of that, put/call figures are now a little too bullish for our tastes as the wrong-way crowd is becoming near-term bullish. But even with all this, we do not get worried unless the first line of support is broken...and with holiday trading just ahead...which is usually a positive, we are not so sure the market will give back too much here...but will let the market decide that.

Those short-term support levels are now Dow 12,243...S&P 1403...NASDAQ 2416...NDX 1767. Keep your eye on the NASDAQ and NDX because if there is going to be trouble, it will start there first as we are already seeing subtle distribution. We also make note that GOOGLE just rolled over as it broke $477...a not so unimportant stock.

MEGA-CAP stocks like (C charts news PowerRating), (GE charts news , (AXP charts news ,(IBM charts news and others have moved more in past weeks than they have in past years. We are not saying this is a bad thing...because you can just buy mega-caps right now. We just wanted to make note that in the past, money would flee to them at the end of moves.

COMMODITY and COMMODITY STOCKS are starting to show some serious distribution here. GOLD and SILVER are rolling over with SILVER dropping a whopper of 7% on Friday."

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