Once again we see that the market had trouble building on a good gain, and now another nasty, bearish day has taken place. Will this one (February 17th) be any more meaningful than the last one (February 9th)? Probably not. The market had risen back to nearly its year-end 2004 highs (in fact, $OEX made a new high, but $SPX and $DJX did not). Now it has fallen back. Bears and many other technical analysts are calling this a double top (Figure 1) it almost seems like majority is calling it a double top. If so, that could be a contrarian signal -- a bullish one. Even so, we'd consider the charts of the major indices to be bullish as long as they don't penetrate last week's lows on the downside ($SPX 1191; $OEX 572; and $DJX 10,650).
So far, our other indicators have not turned bearish yet, but further declines of the magnitude of Thursday's could change that. The equity-only put-call ratios (Figures 2 and 3) remain on buy signals. However, you can see from Figure 2 that the standard ratio is flattening out. That isn't particularly encouraging and might be presaging a sell signal.
Market breadth was terrible during Thursday's decline, but it also was during the one-day decline last week. This has thrown breadth into a sell signal, which could be serious.
Finally, volatility ($VIX) registered another 9-year low, closing at 11.10 this week. It did move higher during Thursday's decline, but not high enough nor fast enough to be considered worrisome yet. A move above by 14 by $VIX would be a sell signal.
In summary, most of our technical indicators are still bullish (save breadth). Moreover, it seems like everyone is jumping on the bearish bandwagon as they observe what appears to be a double top in the major indices. We, however, are going to remain bullish unless those support levels (last week's lows) are violated on the downside.
