Both the bulls and the bears have had numerous chances to move this
market, and they really have been unable to. We thought that last
Friday's breakout to the upside would finally give the bulls the
ammunition they needed to push the market to a test of the year-end
2004 highs. But action was pathetic on Monday and Tuesday, so the
bears resumed control on Wednesday. There was no follow-through
to that selling either, though. Thus, we are adopting a neutral stance
for now until there is more resolution to price movement.
The major indices have acted erratically. First, they broke out to
the upside ($SPX above 1195 was one such breakout). But within a
few days, $SPX fell back below there -- negating the breakout. Now,
it's slightly above that level again. There is resistance at 1205 now,
with support at 1180-1185. As long as $SPX remains within that
range, we aren't inclined to take a speculative position.
The equity-only put-call ratios have finally given buy signals, so
maybe this market will resolve itself on the upside. The charts in
Figures 2 and 3 show that a buy signal has occurred. This is our most
encouraging indicator right now.
Conversely, breadth indicators have given sell signals.
Finally, $VIX has been very low and did not rally much on
Wednesday's decline. Thus, $VIX is somewhat bullish for the overall
market, albeit overbought.
If Wednesday's decline had not taken place, we would have
retained a bullish stance. However, the failure of $SPX and $OEX to
maintain their breakout levels caused us to exit long positions.
Perhaps that was premature, as they are back above those levels again
today. It seems that something has to give soon, for option premiums
are extremely cheap and the market is really trading in a fairly tight
range
