Sentiment Stays Buoyant Despite Oversold Market

Back in November, I kept receiving emails from bulls asking me, "Wasn't it so bullish that the Overbought/Oversold oscillator hadn't breached the zero line in months? Wasn't that a really bullish thing?"

Sure the sign of a bull market is one where we get overbought and stay overbought. But where are all the folks today asking about the oversold condition?

The NYSE has been in oversold territory for nearly a month now and Nasdaq has been there since late November, yet I don't see anyone asking if this is a negative tell for the market.

In other words, we've been oversold enough to have a decent rally for a month now, and yet we just can't do it. Three months ago we could barely get the market toward an oversold condition and now we can barely get it overbought.

This is a momentum indicator. Some of you might recall way back when -- in November -- I said I thought we would see the market peak around Thanksgiving. One of the reasons was that we had been overbought for too long, but another reason was that the oscillator was no longer making higher highs.

Of course, Nasdaq (so far) made its high right around Thanksgiving, but the S&P 500 was at 1400 then and went on to 1430. However, notice here we are six weeks later and the S&P is still hovering around 1400. We've made no progress in six weeks.

Now take a look at the number of stocks making new highs; 585 on Dec. 5. That would be just after Thanksgiving on my calendar. That means the majority of stocks made their highs right around Thanksgiving. Nasdaq's new high peaked just before Thanksgiving.

When we've had a run such as we had from the July lows, it is going to take a lot of rocking back and forth before we can get the market to fall noticeably. However, I'll point out something else I noticed when I did my statistics this weekend. A chart of downside volume as a percent of total volume on the NYSE shows a clear trend since Thanksgiving as well.

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Helene Meisler writes a daily technical analysis column and TheStreet.com Top Stocks. For more information, click here. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback; click here to send her an email.