Of FOMO and On Hold

Stocks remain overbought, sentiment remains at extreme levels, and IMO, complacency has set in. And yet, the S&P 500 and Nasdaq indices continue to march higher on a daily basis. As such, the bears are sure to be asking, how can this be? From my seat, the answer is simple. As we've been discussing for many weeks now, stocks appear to be enjoying a "good overbought" condition, where the market gets overbought and stays overbought - until the bears can find a meaningful catalyst to cause some real selling. Until then, it appears that FOMO and capitulation are driving the action. The bottom line is that by now, everybody on the planet knows they need to be in mega-cap tech and the COVID winners. And with everyone jumping on the same bandwagon, the trend continues. Until it doesn't, of course!

The State of the "Early Warning" Indicators

There are no changes to report on the Early Warning board this week. My take on the current state of the Early Warning Indicators is the "table" continues to be set for some countertrend action - or at the very least, a period of consolidation. My guess is that when the bears do finally find a raison d'etre (and they will, it's only a matter of time), we should expect the selling to be intense for a few days.

* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.

Stochastic Review

The market continues to grind higher on a daily basis here and there has been little-to-no downside action since the end of June. And while I do believe we've got a "good overbought" condition on our hands, we have seen this movie before.

If the market follows the script, we can expect a scary decline in response to whatever fear comes out of the woodwork next. These bouts of selling tend to be short and sharp, and in my experience, represent a good time to put additional funds to work.

But for now, I'd be #OnHold with regard to new buying here.

S&P 500 - Daily

(Click on image to enlarge)