The Sound of Music, the musical based on the Von Trapp family singers, is kind of sappy and saccharine. But there are a bunch of applicable market metaphors in there, and to tell you the truth, it's one of my favorite movie musicals. (It's right up there with Mame, Hello, Dolly, Oliver! and Grease.) For example, let's take the song Climb Ev'ry Mountain:

Climb ev'ry mountain
Ford every stream
Follow every rate cut
Till you find your dream

OK, so I changed the words a little. But what's the difference -- rainbow or rate cut, it's pretty much the same. Now let's try a chorus of

My Favorite Things:

When it's overbought,
Overvalued,
When you're feeling sad,
You simply remember the Fed will cut rates,
And then you don't feel so bad

All of this makes the point that the

Federal Reserve

still dominates most conversations. You know, stuff like, "But the Fed has cut 10 times for 450 basis points (from 6.5% to 2% for those keeping score at home), and the odds say it will cut again. It's the liquidity factor. This stuff is trumping valuations. Everyone knows stuff is expensive, but it matters less because the Fed is adding so much liquidity you can float in it."

Those Fed sycophants -- they can make a compelling argument! I'm not going to challenge their claims completely, but I will say that the bulls may not be aware of the following:

Of the 17 major indices and sectors I monitor daily, 15 are overbought enough to make me believe the little correction we're seeing now will continue. Only energy and utilities are not overbought when compared with their 50-day moving averages. The overbought readings vs. 50-day moving averages are extreme enough to typically presage a correction even in a bull market, so it's no stretch to expect that a pullback or correction will follow. Just in case you're wondering, I'm using the 50-day moving averages as the first level of support for the major indices.

The daily number of new highs on the

NYSE

peaked at 117 on Nov. 7, and the 10-day moving average of the

net

new highs on the NYSE peaked at 67 on Nov. 19. Meanwhile, the 10-day moving average of net new highs on the

Nasdaq

peaked at 42 on Nov. 27 and has remained at this level for the past four days. In a phrase, we ain't going higher unless these numbers expand.

Here's what it looks like:

Market Won't Rise Without More Net New Highs

Source: John Roque

My bellwether,

General Electric

(GE) - Get Report

, trades like the Giants play football. GE is right on its 50-day moving average. I think it fails, then it works its way lower to $35. A 9% correction may not matter to some, but with performance so hard to come by, we figure it will at least be important enough to consider.

GE Rings the Bell(wether)
General Electric is at its 50-day moving average

Source: Bloomberg

I think the rate on the 30-year Treasury bond is going to rise. So with this in mind, I've been expecting interest-rate sensitive stocks to weaken. So far this idea hasn't been worth a damn for homebuilding stocks. However, it's been working well for utilities, and it will begin to be more evident with regional banks.

I think gold and gold stocks are going to rally. This idea seems to fit with the rate rising on the 30-year bond. The spot gold price is above its upward sloping 200-day moving average ($275.35 vs. $272.32), and though the stocks haven't worked in the last month (!), I still feel the group will work higher.

Freeport-McMoRan Copper and Gold

(FCX) - Get Report

looks as if it is making a major low.The stock is above its 50-day and 200-day moving average and is, in my opinion, in a sweet and still largely avoided sector. I think this stock works -- but it will take time. Use pullbacks to the $11 area to add. Best stop is $9.95.

A copy of the book

Seabiscuit

by Laura Hillenbrand (the best book I've read all year) to the first person who can tell me the names of the two boxers who played heavies in the classic film

On the Waterfront

.

John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. He appreciates your feedback and invites you to send it to

John Roque.

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