Yesterday, the major indexes closed lower. Yet, there were 77 new highs in the NYSE versus 33 new lows. NASDAQ had 132 new highs versus 27 new lows. Eleven companies are scheduled to price their initial public offerings (IPOs) this week. 100% of the companies reporting earnings this week have beaten consensus estimates. Applied Materials (AMAT) is merging with Tokyo Electron (TOELY) in a deal valued at $29 billion. The institutional investor conference schedule is about to move into high gear after a quiet summer. In other words, the sell-off of the past several days appears to be principally motivated by profit taking.
Realized correlation between stocks is approaching record lows. This indicates stocks are trading on their individual merits rather than global, macro issues. Low correlation between stocks is usually a sign of a healthy market. Correlations approach one during times of crisis.
As the short-term, overbought condition of the market corrects, we are looking to put new money to work in equities. The percentage of stocks trading above their 10-day moving average has fallen from 80%+ last week to about 57% yesterday. A strong short-term oversold reading for the 10-day moving average is around the 10% range. With this short-term indicator at about 57%, an investor can be patient about making any new long trades.