A cyclical bull market remains in force running off the early 3/09 cycle low.
The second upleg which began at the end of Aug. 2010 has experienced a break of trend
but did not break down substantially. The rally underway since 3/17/11 will lack substance
until the market challenges the previous closing high (1343 set 2/18 in the case of the $SPX).
The market lacks a bankable short term trend and is short term neutral when measured in terms
of short run overbought or oversold.
The market has been in the process of working off a substantial intermediate term overbought
condition in terms of premium to the 200 day or 40 wk m/a. Historically, it has been difficult
to sustain major new uptrends when this process is underway. One example of this type of
analysis can be seen here.
I smooth off the market vs. the 40 wk. oscillator and when it trends down, I get a mechanical
sell signal which experience has taught me to respect. Thus, for the interim, I am not likely to
initiate a long side equities trade unless the market falls to a fairly deep short term oversold.
Frustratingly, it can take as long as 6 - 9 months after I get an intermediate mechanical sell
signal for the market to have unwound enough relative to the 40 wk. m/a to produce a solid,
reliable intermediate term buy signal.
I would also say that I have not liked the comparative action of the CBOE equities put / call
ratio to the OEX 100 put/call ratio. The CBOE equities options players have been strongly
net long over much of this year, while the larger players have been strongly net short with
the OEX p/c ratio so far in 2011, indicating major activity to hedge long positions. For
pictures of OEX p/c activity, click and scroll here.
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