I'd love to be bullish, but...

As I do at the end of each month, here is a breakdown of some things I’m looking at.

Positives

Accumulation/Distribution -- Price and volume action has been a positive. There have been several days where volume has picked up while the market rose. In conjunction with other technicals that would be a good sign. Alone, not too convincing.


Neutral

Foreign Markets -- Foreign markets are no longer leading they did earlier in the year. There are a few exceptions that are breaking out to new highs along with the U.S. These include Belgium, Netherlands, Spain and Switzerland. After that, slim pickings.

Sentiment -- I’m not seeing any strong consensus among the sentiment readings I look at. This could be viewed as a positive that the major indices are near new highs and there doesn’t seem to be extreme bullishness. Still, middle-of-the-range sentiment measures are a poor tool for market timing.


Negative

Breadth -- Breadth statistics remain less than impressive. All though the indices are near or at new highs, the number of new lows has been quite large on down days. The number of new highs is far below where you would like it to be at this point in a rally. This rally appears to be large-cap oriented and narrow. Not a positive.

My stagnating watch list -- In a strong uptrend I will uncover more potential buy candidates than I could possibly buy. Currently, I’m finding very little -- and it’s not for lack of looking.

UUWNHI (Unofficial, Unscientific, Working/Not working Hanna Indicator) - Excitement. Conviction. Strong follow-through. Runaway breakouts. If anybody can find these things in this market, please let me know. In strong uptrends, runaway breakouts swarm like locusts. Currently, I’d liken them more to the rarely seen Snow Leopard. (How’s the Nepal market doing?)

Summary

I’d love to be bullish. I truly would. It’s fun to be part of the popular crowd. The indices seem to be masking what is happening under the surface, though. Strong setups are just not revealing themselves. Therefore, I shall remain underinvested until the setups suck me in or (more likely) the market rolls over. I looked back at my trading records over the last 5 years to find months where the S&P rose at least 3% while I struggled and had trouble allocating cash. There were 5 instances. One was at the October 2002 bottom. I was able to get capital into the market much more aggressively in November of that year and make some money as the market continued to rise. In the other four instances, the market declined the following month. As it turned out, being underinvested on the way up saved me on the way back down. The song remains the same. Don’t chase. It’s not as pretty as it appears on the surface.

Best of luck with your trading,
Rob

For those who may be looking to expand their knowledge beyond just market timing, my Hanna ETF Money Flow System utilizes the VIX in generating trading signals for spread trades.

Rob Hanna is the principal of a money management firm located in Massachusetts. He has spent the last several years developing and refining methods for trading in stocks across multiple time frames. He selects stocks using both fundamental and technical criteria, and then trades them using technical analysis techniques.