I really want to see how the market reacts to being overbought (by both indicators above); I want to know whether it brushes it off and proceeds higher, pulls back a bit, or just falls over. I will provide a more in-depth explanation of what I am looking for in the charts below.
The chart below is the McClellan Oscillator; it is a few points shy of becoming overbought. The structure it has made is a simple structure (no sign of strength yet), very simliar to May, where it had a very similar reading (circled in black) before the markets fell over. What I am looking for now is whether it can get into overbought territory and whether it stays above 0 all of next week (thus making a complex structure above 0). A complex overbought structure almost always results in higher highs in the coming weeks.
Below is the Ratio Adjusted Summation Index; it is derived from adding the daily values of the $NYMO cumulatively. Note the fishhook-like structure in May (highlighted in green); I am looking to see whether a similar structure will be made this week. As of now, this indicator is promising us higher highs.
Lastly, the chart below is on the back of my mind. It is the S&P 500 where the start and end of each quantitative easing round is labeled. QE1 gave the market a 30% gain; QE2 had a gain of 10%; it is really hard to imagine the markets falling apart when QE3 just started. The reason why I post this chart is to remember: don't stick to the idea of being a permabear, as there are other forces out there keeping this market up.