First, take a look at the 60min charts of $SPX/SPY & QQQ and note that the RSI’s have pushed above 70. For the Q’s this happened on Wednesday and continued today. These were already overbought and were setting up for some kind of give back before GOOG announced.
Next, $NDX/QQQ daily chart is also showing an RSI just above 70 and so this key sector is overbought in two time frames.
But wait, there’s more.
The following breadth indicators have pushed either deeper into overbought territory or into overbought territory today.
Zweig Breadth Thrust pushed up to 61.97, when 60 is the line in the sand.
4wk New High/Low Ratio pushed to 92.18. Closer to or above 95 is always more conclusive, but 92.18 may be enough for now.
$BPSPX rose to 79 from yesterday’s 75.6.
$SPXA50R hit 86.60.
$NYMO w/Bollinger Bands is now just 11 ticks below the upper Bollinger Band. It’s always better for $NYMO to tag one or the other BB, but this may be close enough.
P/C Ratio has dropped to .70 today, which is its lowest reading since mid-July and which means that everyone has once again moved to one side of the ship. Take a look at this chart of Cobra’s to see just how one-sided the market has become in the last few days.
What all this means is that bulls have been having a hay day and it’s blue skies forever. ‘Cept the market doesn’t work that way. Last week we were approaching extreme overbought levels but breadth indicators backed off giving the rally a few more days. Based on today’s readings of these breadth indicators and the fact that the much loved Q’s have entered overbought territory in two time frames I have to think those ‘few days’ are here and maybe gone. GOOG may be the catalyst that will push the markets down a bit but since the obvious is obviously wrong don’t be surprised if GOOG only closes down a little tomorrow as price is defended.
Regardless of what happens tomorrow, the markets have entered overbought territory and it’s time to be very cautious until we see how this shakes out, IMHO, of course.
Chart of $SPX showing it still moving above all MA’s and trend lines. 200MA dropped by 0.09pts today. If you based your analysis on charts alone, you would have no idea that the market is at a potential turning point right now.