In focus: Bulls are exhausted

By Lawrence G. McMillan

As readers know, we have been bullish continuously since early June. Even as late as a week ago, it still seemed possible for this market to move higher over the short term. But recent events and indicator changes have put this short-term forecast into jeopardy.

Everything seemed to be going rather smoothly after the Fed announced the latest round of Quantitative Easing on Sept. 13. Even thought the Standard & Poors 500 Index topped out the next day on a massive overbought condition, the pullback over the next two weeks was orderly. After finding support at SPX 1,430, the market rallied to the point where it seemed ready to attain new highs. That was evident last Thursday as SPX rose 11 points and then again on Friday, when it rose nearly another 10 points as an initial reaction to the Unemployment Report.

But then things began to go awry. As SPX rose to within a couple points of the yearly high (set on Sept. 14), it stalled. Then selling set in. By the time the market had closed last Friday, all of the gains in SPX had been reversed. That is very negative action — a negative intraday reversal from a point that is supposed to be a fulcrum for an upside breakout. The selling that was evident on Friday has continued for three more days this week, driving SPX back down to the 1,430 level once again...

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