The S&P has not had three down days in a row since early March (thanks to reader Charlie for that tidbit). That goes back to before the lows. That streak remains alive.
But what we have seen time and again in the market over the last month is we get these two-day pullbacks (or in the case of small caps, longer) and they are enough to get everyone all bear-ed up again (see yesterday's put/call ratio) and then we rally again.
Yet, the end result is that the S&P 500 is now trading exactly four points higher than it was a month ago. The bulls will say we're digesting the move off the low and the bears will say we're gearing up before we go lower. Yet what we really have is a tug o'war.
The indicators have been supportive of the market until about a week or so ago, when they got overbought. Then this week breadth had been weak enough to halt the rise of the McClellan Summation Index, and even turn it down. Thursday's rally hasn't changed that. Breadth during the rally was, well, pretty crummy. It couldn't even get to positive 300 on the day the S&P rallied 32 points. It's going to take some good breadth days to get this to turn up again.
But the story of the day was the reversal in the banks. I noted Thursday I thought the negativity on them had gotten far too loud and they were deserving of a rally. It was nice of them to accommodate us so quickly. Let's take a look at the chart and discuss it. I believe everyone is using this uptrend line that was broken last week. That looks pretty bearish, despite the reversal, doesn't it?
Now let's take that line out and draw in a support line at 60. Oh, look at that, the Bank Index doesn't look nearly as awful does it? And what if I draw in a potential "W" pattern (blue)? Not so bad, eh?
To me the following chart is what we need to focus on, though. We bounced off the support (black) line and there is a minor resistance line (blue) not far overhead. All I know is if that blue line cannot be penetrated and the banks roll back over the bearishness from two days ago will resurface.
Speaking of sentiment, the 10-day moving average of the equity put/call ratio (blue line) is at the lower end of the range and heading up now. So if folks get bearish again this indicator will shoot up in a hurry, because starting next week we have a string of readings under 60% to be dropped.
I suspect volatility returns again next week.