The “green shoots” of “bullish optimism” were squashed today after the Federal Reserve Chairman’s testimony this afternoon.  As we have indicated repeatedly over the past weeks, we maintain our short-term and intermediate-term “bearish” outlook within the U.S. equity markets.  Price action and momentum continue to be decisively negative along with extremely light volume and “bearish” money flow.  In addition, we have been closely monitoring the bond markets (which continues to signal trouble ahead for equities) and various volatility indexes.  Based on our analysis, volatility indexes (for example, the VIX) have been signaling another market move to the downside. 

The VIX broke below its 200-Day SMA back during the March 2009 market bottom (typically a bullish sign).  The VIX continued to trend lower and remained below its 200-Day SMA throughout the massive move higher within the equity markets…until April 2010.  During April 2010, the VIX once again “spiked” and traded above its 200-Day SMA (and has remained above the 200-Day ever since).  Since April 2010, the VIX has subsided and traded down to its 200-Day (and usually touched) on a number of occasions – this occurred on May 25^th, June 18^th, July 13^th ….and again July 20^th (yesterday).  Each time, however, the equity markets sold off (often suddenly and violently) within a day of the VIX retracing back to its 200-Day SMA.

Also, our stochastic oscillators have once again entered “overbought” territory, particularity the SPX and Nasdaq.  Again, stochastics are often leading indictors to price action.   However, “overbought” and “oversold” conditions do not necessary mean an immediate, or impending, reversal.  However, “overbought” conditions within our stochastic oscillators which occur within a longer-term “down trend” (especially if the index is below key resistance levels) are typically very “bearish” and a very good indication of another short-term market top.   The bottom line – we see significant resistance to any upside market move and anticipate a further continuation of this market down trend.

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