September 07, 2012 - still a bear rally

The surge to new highs yesterday looks very bullish but by my measures this rally is not strong enough to pull the market out of the bear market condition..

Here are some indicators.

> percent of SPX stocks above their 50 DMAs - this indicator helped correctly decide that the bear market thesis was not valid anymore back in October 2011. Now, the indicator is below the 80-85 bull/bear threshold.

> XLY vs XLP (discretionary vs staples) - huge underperformance

 

> the monthly ratio of cumulative advancing vs declining volume - it will have to pass the upper horizontal line to enter bull market territory.

> average momentum - the same as above

Meanwhile, the SPX is just below the important monthly resistance at 1440.

I think a top will develop as the market settles above this level, probably next week or the week after, following a short term pullback that starts today (the market has already committed to new highs - see my previous post).