Technical bear case:
- The Advance-Decline Line (for NYSE) has failed to make new highs (market breadth is week). ADL on chart.
- Slow Stoch indicates a not-yet-oversold signal, but is close. Confirming a sell-off.
- Futures have faded nearly every day of the last week (morning strength, afternoon weekness).
Commentary bear case:
We have seen a clear distribution for the last 16 days. The $rut/$compq, were previous leaders - taking the market higher. However, they have lost their leadership. This most likely indicates a rotation of assets by investors. $indu/$nya have both seen more strength over the last week than $SPX and the previous leaders ($rut/$compq). This could indicate that some of the rotation has been coming out of higher-risk stocks, and going into the big names. This is a risk-off move and indicates a purchase of value (big name companies) over risk. Investors often roll assets into the $indu to protect against the downside.
Now the SPX could still bounce around (It is a large-cap/value index), but I believe the Stoch needs to hit oversold before the major players get back in. This sets-up for a smaller correction within the next week.
Be on the lookout for the leaders if/when the SPX goes up. If the dogs of the dow (like CSCO), or sectors like utilities (VZ, XOM) break out, it will confirm more risk-off.
But, I could be entirely wrong about all of this :).
-2X