The bullish case has lost a lot of credibility with the failure to make new highs, and the subsequent breakdown below recent support by the major indices. For example, $SPX's close below 1192 was damaging to the technical picture. This came despite a couple of isolated strong up days, but there was no follow-through to those days. The bears can hardly be gleeful, though, because their big chance came this week when the market took a pounding on Tuesday, yet it was able to bounce back some from there, so the bears have no follow-through ability either.
As for our technical indicators, they are mixed. The equity-only put-call ratios remain on buy signals (Figures 2 & 3), although the standard ratio has begun going sideways. If it were to begin to rise from here, that would constitute a sell signal. As you can imagine from looking at the chart, there is more than a small chance of that happening. The weighted ratio appears to be more strongly entrenched in its buy signal at the current time.
Market breadth has been volatile, but three very negative days (the 17th through the 22nd -- see table below) generated sell signals. Generally, the only way out of this is for the market to decline enough so that these breadth becomes oversold and then generate true buy signals. This is our most bearish indicator at the moment.
Finally, volatility ($VIX) spurted higher this week, when the market had its big decline (also, see article on page 12 on this topic). However, that rise was not enough to generate a sell signal, in our opinion. Moreover, $VIX has now declined since then, and 7 hence this indicator remains in overbought territory, but is not bearish yet.
Overall, these indicators are mixed and aren't giving much of a clear picture at all. Bears are calling for the market to at least test the January lows (approximately 1160-1165 on $SPX, for example). Bulls are hoping for an upside breakout. The way the market has acted the past couple of days, neither may get their wish. We prefer to stand aside as far as broad market positions go, until we get some unanimity in the signals from our indicators.
