THE CASE OF THE MISSING ZWEIG OVERBOUGHT

MrTopStep.com

By Marlin Cobb (aka RedlionTrader)

For the new readers, I love to write about market breath and how the market appears on the whole, a kind of holistic approach.  The Zweig breadth index is one of our tools to do that. It is simply the 10-day moving average of the NYSE A/D line telling us the accumulating effect of breadth over a 10-day period.  For us overbought is above 61.5 and oversold below 40.  

The chart below is our current breadth setup, where we have subtly pointed out the missing overbought.  The index usually travels to overbought about once per quarter as the market goes on a buying binge.  The way the market is currently set up, it would have to really break hard to the upside to sweep the index into overbought.  It would be an awe-inspiring move, like two 2% days in a row or maybe a 3% day.  That time bomb is ticking, and we remain bullish as we have been, but that call is getting crowded; still, we would like to see that blowoff in the markets sometime here in January.

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For today’s call, we remain bullish, but feeling claustrophobic. Our range today is ESH 1477 on the topside and 1460 on the downside.  A break of 1460 has us calling for a battle of the top.

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Today's data:

  • It’s 7:15 a.m. and the ESH is trading 1466, down 1 handle; crude is down 77 cents at 93.05; and the euro is up 15 pips at 1.3274.
  • In Asia, 7 out of 11 markets closed lower (Shanghai Comp. -1.78%, Hang Seng -0.39%)
  •  In Europe, 6 out of 12 markets are trading higher (CAC -0.15%, DAX +0.02%).
  • Today’s headline: “U.S. Stock-Index Futures Are Little Changed; Ford Rises”
  • Economic calendar: Today: International trade, import and export prices, Fed's Plosser speaks, Treasury budget, Best Buy to report holiday sales and earnings from Wells Fargo 
  • Fair value: S&P +0.63, NASDAQ -0.48

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