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Despite how promising some, but far from a proliferation of, charts look for potential longs, the fact of the matter is that equities remain highly correlated to other asset classes. Beyond that, headlines out of Europe still have a noticeable effect on this uncertain market. Trending markets often shrug off news that is counter to the trend. In other words, bad news is often bought during an uptrend, and good news is usually sold in a downtrend. In the current market, though, stocks are searching for a direction. Thus, I am seeing a bit reverse of an effect, in the sense that the other markets are shrugging off the potential for breakouts in stocks in either direction.
The VIX broke below 30, but is still hanging around the neighborhood. Bulls need to see the VIX not just hang around here, but to collapse into the low-20’s.
The Euro is not showing much enthusiasm at all, which is problematic for risk appetite. Although the case for a higher low/double-bottom since early-October is still colorable, there is no sense of urgency amongst bulls yet.
Finally, bonds have yet to see the big rollover that equity bulls have been looking for. The more bonds hang around up here, you cannot rule out another leg higher in this multi-year bull market, which is going to be tough on stocks.
I continue to monitor all of these factors, in addition to charts of stocks, given the correlations and the nature of the current market. The market is dynamic enough to change on a dime, but being too early usually amounts to just being plain wrong. I am open-minded an on watch for a change in character.
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