Yesterday was much like many of the sessions of 2013 thus far; morning selling followed by a late afternoon surge. This is considered bullish behavior. That said, near term things are getting very overbought as everyone is piling in on the same side of the boat. I showed a few indicators late yesterday (% S&P stocks over the 50 day MA, # of index puts owned betting on a downside move). We also have things like newsletter writers at their highest bullish recommendations in years:
Hulbert newsletter writers recommend an 81% net long exposure, highest since July 2000, next highest December 2004/May 2010.
Let's just say just about everyone is now clearly in the bull camp.
While some of Tom DeMark's calls fail (as any system does) people do watch his market calls pretty closely, and if you recall on the 11th he said there would be one more thrust up to 1492 on the S&P 500. At that time there would be buyer exhaustion per his market timing system. That was actually reached in the closing moments yesterday.
A more traditional technical take of the inverse head and shoulders formation created from the November bottom would lead to an eventual target in the 1520s for the S&P 500. That is about 2% upside from here.
Despite "good" (not great) reports from Google (GOOG) and IBM (IBM) after the close yesterday (both stocks up substantially) we're not seeing a major gap up or anything at this time, simply due to the fact so many things are so very extended. Case in point – the transports! When entire groups are so far away from even their 10 day moving averages (not to mention 20 day) there is a high probability of near term reversions to mean.
At minimum the bulls would be best served by some sideways action to work off some of these overbought conditions. Conversely a price correction to shake out some of the giddiness could happen. Longer term there is the issue of multiple gaps now in the index charts – usually these get filled in a 2-4 month time frame. We have the mid November low (1362), we have the gap and go on the first day of 2013 (1426), and then last week's minor gap at 1472.
In the very near term we have Apple tonight which will dictate the direction in the next 24 hours.
Any securities mentioned on this page are not held by the author in his personal portfolio.