I’d love to be bullish, but…

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,