For the first time since the beginning of February, the majority of my breadth and price indicators have turned positive. In addition, sentiment is negative enough that, if it can turn positive, it should cause a significant rally. The crux is now for something to happen to turn sentiment from its negative extreme to a more positive position. What that could be or whether it will happen, I don’t know.
I’m still cautious but leaning towards the positive more than I was at the beginning of last week. The relatively steady reaction to the GM and F debt downgrade news has to be respected. As Todd Harrison said on Friday "I can think of lots of good reasons why the market should be lower". The fact that the markets held steady needs to be respected, especially if the indicators begin to turn positive. Forces behind the sceens (i.e. the Fed, Kerkorian) could ensure the auto situation doesn’t turn into a market panic.
The NASDAQ Summation and Bullish Percent are close to, or have already, turned higher.
Likewise, the NYSE breadth indicators have turned positive from "oversold" conditions.
Sentiment is negative enough to fuel a rally. However, something needs to turn the trend from negative to positive. Markets do best when the Equity Put/Call Ratio stops rising and starts falling after reaching a negative extreme. We’re close enough to an extreeme but the ratio is currently still rising.
