As I usually do at the end of this month, here is the breakdown of some of the things I look at...

Positives:

Sentiment -- Sentiment reached extreme levels as the market sold off in mid-June and mid-July. While sentiment has become less bearish with the recent bounce, it is still showing a green light.

Neutral:

Accumulation/Distribution -- While the market has rallied the last couple of weeks, there has been a lack of evidence of strong institutional accumulation. Price and volume action has been spotty. Accumulation is evident when the market consistently rises on days when volume increases and declines on days of declining volume. This is not yet the case.

Foreign Markets -- There is no real leadership evident among foreign markets currently. Most of them are in relatively the same position as the U.S. After selling off hard in May and early June, they have consolidated sideways and recently begun to move back up.

Breadth -- While the advance/decline line has started to turn higher, the number of stocks hitting new highs is still not near where it should be during a healthy advance. Breadth can be a powerful indicator. It warned us of the pending selloff early in the year. Right now it isn’t saying much.

Negative:

My small watch list -- I’m still not seeing much in the way of quality stocks building basing formations and preparing to break out. Pickings are slim and any further advances will likely have a hard time finding strong leadership. Without leadership, rallies have a difficult time.

UUWNHI (Unofficial, Unscientific, Working/Not Working Hanna Indicator) -- The lack of upside opportunities are speaking volumes about this market. I have not seen so little opportunity on the long side since September of 2002. Unless more stocks star breaking out of solid basing foundations, this rally is likely doomed. The choppiness over the last two months has made shorting somewhat difficult. Still, I believe profits have been easier to come by on the short side than the long -- as long as you don’t outstay your welcome.

Summary:

From a technical standpoint, the market is still doing very little to convince me that this rally is for real. I expect economic news to worsen and the market to make another leg down before a strong, sustainable rally develops. A pause by the Fed next week may delay the selloff a bit longer, but I don’t see a large move up at this point being probable.

Best of luck with your trading,
Rob Hanna
robhanna@comcast.net

For those who may be looking to expand their knowledge beyond just market timing, my Hanna ETF Money Flow System utilizes the VIX in generating trading signals for spread trades.

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.