The bulls have had all the news go their way, but they haven't done
much with it. Both last Friday, when the unemployment report was
announced, and then this Tuesday, when the Fed decided to pause in
their rate-raising, bulls poured into the market immediately afterward.
However, they were quickly sent scattering when large numbers of
sellers showed up. $SPX actually traded above 1280 five different times
and above 1290 once (actually trading at its highest price since May).
However, it has not been able to close above 1280 even once! This has
all the earmarks of the bulls expending their energy just to keep prices
level. The bottom line is that the 1280-1290 resistance area on $SPX has
held rather convincingly.
The equity-only put-call ratios remain on sell signals, as they
continue to climb. We are somewhat leery of reacting to put-call ratio
signals when both the underlying market ($SPX) and the ratio itself are
rising. There has clearly been massive put buying, but when one sees
that in a rising market, it is usually attributable to hedging. In any case,
these ratios are not on buy signals but are oversold in that they are
nearing heir highs.
Market breadth (advances minus declines) has been poor. There
have been many days of negative breadth, even though the market is near
its highest prices since the decline began a couple of months ago.
Finally, the volatility indices ($VIX and $VXO) have crept slightly
higher, stabilizing in the 14-15 area. This is a bit negative, but not overly
so. On more than one recent occasion, we have seen $VIX move higher
during a dull or slightly bullish day -- and that proved to be a negative
short-term signal. Right now, though, we'd rate the volatility indices as
neutral.
In summary, we don't really have any recent buy signals ($VIX and
breadth are stale buy signals). Moreover, with $SPX
unable to break through overhead resistance, and the generally negative
season of late August - September approaching, we are taking a bearish
view of things. In addition, $SPX is now approaching the longest time
in history (well, in the history of the S&P 500 anyway) without at least
a 9% correction. While we realize that fact is not a timing indicator, is
does show just how little selling has been done since 2003.
Unfortunately, when this much bullishness is packed into the market, the
release of that bullish energy is swift and nasty.
