Cautiously Bullish

The weight of the evidence suggest a neutral to bullish bias, as the equity markets appear to be consolidating rather than correcting.

SPX sits at firm resistance near 1100; positives include climbing RSI (Above 50 now), and a bullish cross-over in both BPSPX and the McLellan Oscillator (see charts for these indicators). This resistance at 1100 has been a tough one to beat; it also marks a down trendline from the 2007 highs. Nasdaq looks stronger than SPX (and its bullish percentage crossed above its 10-day EMA). VIX remains in the doldrums (and bullish) and put/call is neutral. XLF (financials) have gained in relative strength. Staples have also fallen behind in relative strength compared to discretionaries, another bullish sign, and small caps have leaped ahead of large caps. Finally, a pause in the dollar's strength could bode well for stocks (continuing their recent inverse correlation). This evidence all points positively for equities.

A negative is advance/decline for both NYSE and Nasdaq, representing divergence from the flat to modest uptrend in their indices. This bears watching, but simply may be a sign of consolidation.

Note, there is a very interesting Elliott Wave alternative interpretation taking hold that suggests the rally from March 2009 lows is the start of a new secular bull market (meaning that an ABC correction ended at C in March 2009). This would suggest that the rally from the March bottom was (and still is) Wave 1 of a new impulsive 5-wave advance. This would also suggest that Wave 2 (corrective wave) would retrace a portion of this advance (perhaps we are in Wave 2 now). We are not fully convinced of this view, as secular bull/bear markets tend to last on average 16 years (this one could be viewed as 10 years-old from its start in 2000). We will respect this viewpoint but rely on our own objective chart analysis.

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