Weekly Commentary 12/28/12

By Lawrence G. McMillan

The stock market, as measured by the S&P 500 Index ($SPX) has fallen about 40 points since mid-December.  Much of this decline has come as the media beats the drum about the fiscal cliff, literally scaring traders into selling.  As the decline has taken place, various technical indicators have turned more negative.   Our overall take of the $SPX is: continuing closes near or above 1420 are bullish; closes between 1395 and 1420 leave the market in a neutral state, and any close below 1395 turns the $SPX chart bearish.

Equity-only put-call ratios are on the verge of sell signals (see Figures 1 & 2).  Both have curled upwards over the past few days.

Market breadth has weakened quite a bit of late, and so both breadth indicators are on sell signals.

Volatility indices ($VIX and $VXO) have risen quite a bit of late. This rise in $VIX is somewhat negative for stocks, and a close above the 21 level would be outright bearish.

In summary, the market is volatile because of the fiscal cliff news.  But the weakening of the indicators is a bearish sign. A breakdown below 1395 would seal the bearish case. 

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