Market Tour Update

Although the bounce from the lows that were touched earlier in the week were impressive (the S&P500 fought back a 4% loss to a 1.9% loss by week's end), volume was light on the bounce, and Friday's action, as the major indices whittled away at their early morning gains as the close drew near, was less than impressive for the Bulls.

Both the S&P500 and Nasdaq stocks trading above their 50-day moving average fell to the lows last seen in August, then bounced as the week ended.  VIX and the Put/Call ratio remain elevated but settled back from extremes reached earlier in the week (VIX hit its highest level since early August). The "Fear" readings in these two indicators suggest more jittery market behavior is likely.

Probably the most disturbing technical indicator that soured last week was the NYSE Summation Index which, for the first time since November, fell below the Bullish zone market by the 400 level (the index closed at 387 on Friday). This level has been useful in identifying bullish and bearish zones in equities. Last year, it remained convincingly below 400 from the "flash crash" into August.  A bearish cross of NYSI vs. its 20-day moving average also occurred two weeks ago.  See the chart below:

On the bright side, financial stocks outperformed for the second week in a row. The return of dividends and potential stock buybacks for the group, deferred since the 2008 crash, caused the relative strength index of XLF (Financials ETF) to push above the 50 line this week.  See below:

Our Corporate Bond Medium-term Treasury Bond ratio bounced last week but remains in favor of bonds, a trend change noted in last week's Market Tour update:

As for our other indicators, Discretionary stocks took a hit in relative strength vs. Staples (a negative for equities), but small caps and growth continue to follow their relative strength uptrend vs. large caps and value, respectively, two additional signs of a bullish trend.

Although its weekly trends remain up, the Nasdaq appears to be experiencing more technical damage than the S&P500, as it maintains its relative underperformance.

So, we have a mix of positive and negative indicators, with the NYSE Summation Index flashing the most disturbing signs. A "watch and see" attitude may be most prudent at this juncture. We see next level support on the S&P500 at 1260, with major support near 1230 (below which a clear downtrend would be at hand). A move above 1300 (Friday's close was 1279) would positively reinforce the continuation of the uptrend and cause us to sift for bullish opportunities.

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