Technicians are Frustrated!!!

(This story has been posted on The Wall Street Journal Online’s Market Beat blog at http://blogs.wsj.com/marketbeat.)

By Tomi Kilgore
Technical analysts face a conundrum.
A laundry list of widely followed chart signals are screaming “sell.” But lately, whenever stocks pull back, investors are waiting, telling their brokers “buy.”
That’s making the stock market rally a frustrating experience for many technicians. They believe what their charts are telling them, but the market isn’t cooperating.
“This is an unwarranted, unhealthy and thoroughly frustrating uptrend,” said Tom McClellan, editor of The McClellan Market Report. “But it is an uptrend.”
Mr. Ross said investors should keep in mind that a rise in the S&P 500 doesn’t necessarily prove the bearish case wrong. Considering how many intra- and inter-market signals suggesting a top is near, he maintains conviction in his methodology. “I’d have to be wrong on a whole bunch of things before I’d believe I was wrong on stocks,” he said.
And yet, the S&P 500 surged 1.2% to an all-time high of 1587.73 Wednesday, busting out of the narrow 1.5% range the index had been stuck in over the last month.
Helping fund the gains, TrimTabs Investment Research said the U.S. equity mutual funds and exchange traded funds it tracks have taken in $60 billion in new money so far this year, which is already the highest in any full year since 2004.
The question for technicians is, does the study of the behavior of European and emerging markets, commodities and cyclical and non-cyclical sectors even matter, when money is pouring into the stock market?
Technicians maintain that the answer is “yes,” because over the longer term, it matters more where the money is going than how much is coming into the market.
Robert Sluymer, technical analyst at RBC Capital Markets, said many of his mutual fund and pension fund clients, who seek to outperform the broader market, are more interested in knowing what’s outperforming and what’s underperforming than what the S&P 500 is doing.
“I’m pretty agnostic on the market in general,” Mr. Sluymer said. “My job is to identify what is leading the market, and what isn’t.”
He recognizes that the overall trend of the S&P 500 may still be up, but he continues to point out to clients the “significant shifts in leadership underneath the index” that might normally be construed as warning of a near-term pullback.
For example, Mr. Sluymer noted the industrial sector had peaked relative to the S&P 500 in late February, and has been trending lower ever since.
That’s what makes the current rally so difficult for technicians to follow.
“The bets that are working here…are not the type of bets, or trades, I’d be wanting to make at this point,” Auerbach Grayson’s Mr. Ross said. “That’s the conundrum.”