Update August 31st, 2009

As one might expect, all the indicators had down ticks today.

For the $SPX:

A: Down tick and it is picking up momentum to the down side.

B: Down tick and no need for a microscope this time.

C: Down tick and remains in overall down trend from May high.

D: This had a slight up tick this past Friday but it has now had a down tick and rolled over.

E: Worrisome. In back testing I have found that when this indicator was set up as it is now, there was a sometimes dramatic change in the works. Also, in back testing I only found one instance where this particular set up led to a rally so the probability points to the down side in what could be a swift move. But that’s history and so many of these historical markers have been rendered useless in this market and so there is a chance the same will happen here.

For the $COMPQ:

A: Down tick and like the A Indicator on the $SPX it too is picking up momentum.

B: Down tick, which is a change in direction from Friday.

C: Down tick again and remains in overall down trend from May high.

D: Down tick and has now rolled over.

E: Worrisome and much like the same indicator on the $SPX.

So the signal generator says to expect some more down side, but it doesn’t say when. Based on the market’s ability to turn a near 100pt loss into a 47pt loss, I have to consider that tomorrow there will be a bounce of some type perhaps taking back all of today’s losses. But that won’t change things with the signal generator for a couple of days so a bounce on Tuesday will have to be followed by a bounce on Wednesday, etc. For the moment, at least according to the signal generator, the markets remain in a transitional period.

Adding the following at 8:15pm:

So, while the market did pull back as the signal generator indicated might happen, the pull back was nothing special. It appears to be just another, ho hum, low volume pull back and certainly not a distribution day. To get any kind of deeper pull back and/or to make a run at the SPX 1000 level, sell side volume is going to have to make an appearance.

The Transportation Index was down 1.5% and closed right on it 20MA. 11 of the 20 stocks within the index closed below their 20MA’s, up from 5 on Friday.

The Cyclicals Index closed down 1.3% and closed right on its 20MA. Now 16 of its 30 stocks are below their 20MA’s, up from 10 on Friday.

The $RUT was down 1.3% and it too closed right on its 20MA.

Are these leading sectors leading the other way now, or did they just drop to their 20MA’s for a test and are now good to go?

So is this just a retrace to the 20MA? If so then the market should bounce from these levels. The last time the signal generator began indicating signs of weakness, in the week ending August 7th, it meandered about for a while before finally dropping. Since markets don’t tend to go in straight lines very often, then that same course is probably ahead for the market. It may take until Thursday or Friday before the market reveals itself. In the mean time I’d be extremely careful trying to short this market as a few signs of weakness here and there are balanced by strength coming from other sectors such as the financials and the $SOX.