The following chart is that of the ratio of the monthly cumulative advancing versus declining volume:
The SPX is blue, the ratio is red. This is an indicator inspired from Will Rahal's insightful blog. Its behavior is one of the reasons I think we are in a bear market.
Notice how at the beginning of the previous bear market (2007) the ratio reached the lower horizontal line; it has done the same after this year's spring swoon. The indicator then becomes overbought at or below the upper red horizontal line (green circles).
If we are in a bear market, this time around should be no different. I have drawn in black what I think is the most probable future path for the indicator. It suggests more upside to come for the stock market in the very near future. How much upside? In September 2007 the same move for the ratio meant about 4% more on the upside for the stock market in about 3 weeks before the top was in. We'll see how it unfolds this time.
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