SPX remains above support, Nasdaq improves (and outperformance resumes), both on weaker volume. VIX deflects from resistance and continues to form a base. Financials start to underperform. Indices have hit inital bear market rally targets, so caution is advised as one wonders how much reward there is vs. risk at this juncture.
An interesting find: in reviewing our Dow Theory we noticed that transports have been forming a potential rectangle top, suggesting an upside breakout in the continuation of its uptrend. This may be corresponding to recently lower oil prices, although since the March bottom, transports have been moving more in line with economic recovery signals rather than changes in crude pricing.
We are cautiously bullish based on the past price action since July: the market tends to form mild consolidations during its uptrend; increased seasonal trading activity will be key to clarifying the short-term directions.
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