Most of what I’m seeing is negative

Positives –

Foreign Markets — Many foreign markets have been on a tear. Areas at or near new
highs include China, Japan, Singapore, Australia, Canada, Belgium, Austria,
France and the United Kingdom.

Neutral —

Sentiment — Some intermediate-term measures of sentiment are showing
rising bearishness, which is a good thing. Still, numbers are not yet at
extremes. I have found sentiment only to be reliable at extreme levels. I am not
seeing any real edge with regards to sentiment at this time.

My Watch List — The number of stocks I see setting up in new basing
formations can many times show the amount of potential fuel that a move up may
have. While my watch list has been expanding slightly over the last couple of
weeks, the new entrants have been dominated by oil and natural resource
companies. These companies have had many, many basing formations over the last
few years. In general, the more bases the stock has formed on the way up, the
worse the risk/reward is on further breakouts. Therefore, I’m having trouble
getting excited about my watch list.

Negatives —

Accumulation / Distribution — Over the last 4 weeks I’ve counted 4 days
of institutional distribution compared to 2 days of accumulation. While
distributive action isn’t heavy, it is present. Not a big negative, but a
negative none the less.

Breadth — Breadth has been terrible. I spoke in detail on this in
Monday’s column. Narrowing rallies can only last for so long. In my view, this
is a huge negative.

UUWNHI (Unofficial, Unscientific, Working / Not working Hanna Indicator)
— Breakouts have been horrible over the last week and a half. They simply aren’t
sticking. The market charges higher when stocks break out of basing formations
and people rush to gobble up shares. During a healthy advance, you will see many
stocks make quick gains of 20% or more after breaking out. That’s just not
happening. Instead of traders looking at charts a night and saying “Damn, I
can’t believe I missed that breakout. I’m not going to let that happen with the
next stock that meets my criteria”, they are saying “Phew, glad I didn’t get
sucked into that”. There is no sense of urgency to buy stocks, and the
risk/reward seems to be getting worse and worse. There is no free lunch on the
short side right now either. Unless the market is in a runaway down move,
shorting can be quite tricky. That down move hasn’t kicked in yet.

Other thoughts — Bond prices are becoming more and more of a concern. So far
earnings season hasn’t provided any great spark. I don’t see the remaining
earnings reports light a fire under the market. So where will the big excitement
to rush in and buy stocks come from? The Fed? Don’t count on it. Last May or
June one of the Fed governors appeared on CNBC and said that they were in the
“eighth inning” of the rate cutting cycle. A big rally ensued because everyone
figured that meant one more cut. We are now in about the 14th inning. Everyone
is expecting the market to rally as soon as the Fed says they’re done. I don’t
buy it.

Overall, most of what I’m seeing is negative. Still, the price trend of the
major indices remains up. Until that changes, the long side must continue to be
favored. It should also be traded with great caution.

Best of luck with your trading,

Rob Hanna

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.