The market has been moving so slowly and in such a tight range, that
the parameters are the same as they have been for what seems like
weeks now.
The market edged its way higher, at a snail's pace all week, and
is now poised to breakout to the upside. $SPX is at 1191, and we have
been wanting to see a decisive breakout over 1190, in order to turn
bullish. So far, that hasn't happened, despite some positive readings
from a few of our technical indicators. As you can see from Figure 1,
$SPX has failed repeatedly at 1190 -- including the nasty downturn last
Friday. Moreover, the 50-day moving average is just above that level,
while the 20-day moving average has now dropped below it. As for
other indices, $OEX and $DJX are probably a little less bullish than
$SPX. For example, the 50-day moving average of $OEX is at 570,
while the 50-day moving average of $DXJ is at 10,650. Thus, these
averages have more to go before they attain that level.
Why do we view the 50-day moving average as important?
Because many institutions adopt a bearish stance (or less bullish
stance) when the averages are below their 50-day moving average,
while they adopt a more bullish stance when above the 50-day average.
Statistics bear this out, as it has been shown that merely going to cash
when the market ($SPX) crosses its 50-day moving average from
above to below, and going back into stocks when it crosses the 50-day
moving average from below to above, outperforms buy and hold by a
huge, huge factor. Any institutions practicing that methodology are
"out" of the market right now, but would get back in on a close above
the 50-day average. As for $SPX, the 50-day moving average is at
approximately 1194.
Equity-only put-call ratios remain negative. They continue to
climb higher, and they are bullish when rising. They are getting fairly
high on their charts, so they might be considered "oversold," but that
is a nebulous adjective when describing this indicator. Rather, we can
only say they will remain bearish until they roll over and being to head
downward.
Market breadth has been positive all week, and gave buy signals
at Tuesday's close. In one way of looking at this, though, the market
has expended a lot of "energy" just to climb back to this 1190 area.
So, a breakout above 1190 -- while bullish from a price perspective
might quickly put the market into another overbought condition. That
isn't something we'd want to see so soon in such a slow, low volume,
rally.
Finally, volatility ($VIX) has turned positive as well. It dropped
rather sharply this week, and has broken the uptrend that was in place
(Figure 4). In our opinion, this gives $VIX a bullish tone.
In summary, we still don't view the market as bullish unless it
can decisively close above 1190, basis $SPX. Admittedly, breadth and
volatility have given buy signals, but without confirmation from
prices, we just can't get that excited.
