Traders Should Fear Rampant Optimism

Late Wednesday I saw a gentleman interviewed on CNBC, and of course the folks there are so enamored with Google(GOOG - Cramer's Take - Stockpickr) (yet again) that they were asking him about it.

What I found most interesting was his comment that he thought if Google reported a penny better than expectations when it reports earnings that it would move the stock. Yet no one bothered to inquire what he thought would happen if Google missed by a penny!

Has it come to that again?

Has everyone now decided that all stocks will beat earnings?

Have you noticed how there is so much chatter about January and the January effect and the first five days of January and all such manner of January stuff, yet no one seems to have noticed that along with the turning of the calendar we closed a quarter.

What happened to the usual fear of earnings preannouncements? Has it just slipped everyone's mind this month?

As for the market yesterday, breadth was once again excellent, although I admit I'm not quite sure how it was so excellent when the retailers, homebuilders, oil stocks and banks were mostly lower on the day.

However, I did find the new highs bothersome again. The common stocks only (on the NYSE) picked up more new highs but it is still falling short of the previous peak reading. Wednesday's reading was 111 and the peak reading in November was 135. So it's getting better, but why hasn't it done so already?

It's the same story over on Nasdaq. The peak reading for Nasdaq was 185 on Dec. 1 and Wednesday saw only 148. That is surely better, but when you read the list of the new highs on Nasdaq you see names like Apple(AAPL - Cramer's Take - Stockpickr) and SanDisk(SNDK - Cramer's Take - Stockpickr), both of which appeared to break out only to close up pennies on the day. I'm not sure we can call those breakouts and even worse, they get counted in the number of new highs. But that's rationalizing an indicator, something I don't like to do.

With the regard to the oscillator, if we get another big up day today in the breadth readings, the oscillator might just make a higher high. This is clearly something I hadn't expected would occur. A lower high in this indicator would clearly be more negative than a higher high would be. A lower high would indicate a negative divergence while a higher high would indicate just a pause in upside momentum. That is not the case for the Nasdaq, though.

For now, the oscillator remains on track to be overbought by Friday. I expect we will see the market run out of steam then and into the early part of next week.