Negatives still outweigh positives

Positives —

Sentiment — Many measures of bearishness had extreme readings over the last few
weeks. High levels of bearishness can act as a catalyst for a rally. I am not
convinced of the significance of many of these readings at this point in time,
though. While the selloff may have put a scare into many traders and made them
bearish, I don’t believe these indicators measure bearishness among the general
public very well. I can’t say for certain how important it is that longer-term,
mutual fund oriented investors get scared before a sustainable bottom is put in.
I can say I would be more comfortable in recognizing the significance of the
bearish sentiment had the decline been longer and/or deeper. I spoke in detail
about this in my June 19th article.

Negatives —

Foreign Markets — Foreign markets on the whole have taken worse beatings than
the US. This has helped to confirm the move down in the US since early May.

My Puny Watch List — I’m having an awfully difficult time trying to find
anything to trade on the long side. There are very few decent looking
intermediate-term basing formations at the moment. This translates into lack of
leadership and little fuel should the market attempt an advance.

Breadth — New lows have been swamping new highs. There are many more stocks
trading under key moving averages (200, 50, etc.) than above them.
Advance/decline lines continue to head lower. On the whole breadth continues to
favor the downside.

Accumulation/Distribution — The pattern has been declines come on higher volume,
while advances come on lower volume. This pattern suggests distributive action
by institutions. It will need to be reversed for a substantial rally to occur.

UUWNHI (Unofficial, Unscientific, Working / Not working Hanna Indicator) — Since
the market low on 6/14, I have seen very few trades with high risk/return
ratios. Trading has been choppy and difficult. The few attempted breakouts I’ve
noticed on the long side have struggled or outright failed. The short side has
also been difficult. This choppiness and difficult trading is typical of a bear
market. I’m not seeing anything in my trades that suggest a sustainable rally is
immanent.

Wild Card — The Fed. Tomorrow’s announcement could set the stage for the next
move. I suspect the big players (institutions) will try and put a positive spin
on it. With one more day left in the quarter they are going to want to see the
S&P close above 1248. A strong selloff now would ruin their 1st half reporting
numbers. Since I don’t think we’ve seen the bottom, the most likely scenario to
me appears to be a new leg down starting in early/mid July.

Best of luck with your trading,

Rob