Weekend Review 02/17/12

By nearly every breadth measure the market is currently at extremes. What's noteworthy is that this was the same situation last week, and the week before that, and the week before that and... This clearly embodies the concept of markets being and remaining overbought regardless of which breadth metric is used to slice and dice the current environment. This is also the environment where the temptation of caution be damned begins to manifest because the allure of “It's different this time” kicks in.

Stepping back, and by back I mean a decade three things have stood out this week.

Both the NASDAQ-100 and NASDAQ closed at 11 year highs this week. In terms of nearer history the NASDAQ has now cleared the 2007 highs indicating that a change of character is under way as the market shakes off the effects of housing and the Euro-Zone crises.

NASDAQ Monthly

   The second point to stand out this week is the $BPNYA during this same period. Looking back it is very rare to reach the current level. Other than a period in 2006, the only other times this level has been surpassed was in 2011 which was the peak of the move that came off of the 2009 extreme lows. This is something to keep in mind in the near future.

$BPNYA

Third, the primary ratio I keep track of is a very high reading as well and beginning to waver which I associate with instability at this stage.

Primary Ratio as of 02/17/12

Another point to keep in mind is that the NASDAQ has moved nearly 17% during this up let without an “obvious” pullback.

NASDAQ- Current

While much of this suggest an overheated market, it is also noteworthy to observer that the index has moved a mere 1.56% over the past two weeks so under the surface there has been a correction occurring.

NASDAQ Move Since 02/03

Further, this under the surface correction shows up in a number of other scans.  The Secondary Ratio I observe has followed suit and peaked approximately two weeks ago and nearly halved in this time.

Secondary Ratio

The buying pressure over this period has also waned over this time.

Buying Pressure

The $USHL5 further solidifies February 3^rd as a pivotal date since this indicator pulled back on that date and ended the current week on the upside.

$USHL5 02/17/12

Overheated market? Yes.  However, it's my general belief that the market is acting and behaving in accordance to my personal cadence and what I believe to be a healthy market for me to trade in. Metrics aside, sometimes it simply comes down to how stocks are behaving. Recently a number of set ups have broken out as others continue to form solid bases;  also with extended stocks pulling back and a number of stocks breaking out or down based upon earnings, the underlying tone is that it is a stock pickers market right now and focus on vehicle selection is key.