Per most of the indicators I follow, markets did not get extremely overbought today, but there are a couple of things to watch tomorrow.
First, the P/C Ratio closed at .76 today which is the lowest close in more than four months. In other words, everyone has suddenly moved to the other side of the ship. The P/C Ratio can go lower and may but I find it interesting that even though today’s action was far from being the biggest one-day up move that we’ve witnessed over the past several months it was big enough to convince a huge number of options traders to buy calls. Hmm. Is the obvious obviously wrong?
Second, the Aroon Oscillator, marked with a red arrow on the chart below, pushed to 100 today. The last time the A/O pushed to 100 was at the end of April 2011 and we all know what happened next. However, the A/O also went to 100 in early October of 2010 and then stayed there or there abouts for several weeks. So while the Aroon Oscillator can signal market tops it can also confirm market strength. If I was seeing other things indicating that the market was topping, other than for a day or two, which I’m not, I’d be more concerned about the A/O at the 100 level.
Meanwhile, in another part of town, $SPX closed nearly 20pts above its 200MA and pushed up through the swing high from November 8th and then closed above the November 8th closing number, which was 1275.92, all of which is positive.
With the P/C Ratio showing a lop sided market for now and with today’s nice move up, one would be naive to think that the market will rally hard again tomorrow, but $SPX is now just 15pts below another important swing high at 1292.66. With $SPX well above the 200MA, ‘buyers’ may feel that is somewhat less risky to get into the market fray and my come off the sidelines with cash in hand and 1292 may give way before Friday’s closing bell. Maybe.