Have Bulls Tucked in Their Tails Already?

The market has a way of weakening underneath for weeks on end and then, like a house of cards, it just falls on itself. I wouldn't say Monday's decline felt like a boatload of selling; it was more like a buyers' strike. However, doesn't that beg the question, "What happened to all the bulls from last week?"

To review, one week ago I did a reader poll asking if folks thought the S&P 500 would end the year above or below 2100. As you probably know, the majority (60%) indicated they thought it would be higher. So, why has the S&P been allowed to have a four-day losing streak?

What about the fact that two weeks ago bloggers were the most bullish they had been since the spring and now there are more bears than bulls?

I grant you it's not as though we are that far below 2100 on the S&P, but we now have given up all of November's gains. I had thought that we would rally one more time before we came down, but so far that has not been the case. With four down days in a row it is likely we do rally on Tuesday, but the damage to the indicators was in place already heading into Monday.

The market's breadth was not good on Monday. It was the worst breadth we've seen since Oct. 15. I have shown the chart of the Cumulative Volume several times now in recent weeks; I'd like you to see it again because it is right back where it was in mid-October when the S&P 500 was trading closer to 2000, or about 80 points lower than where we are now.

Here is a test you should take -- ask yourself if the S&P falls another 80 points whether you think the breadth will fall commensurate with that decline or will it hold up better. If the answer is commensurate or worse, then you know the underpinnings of the market are still shaky.

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I suppose the good news is that the bulls seemed to pull in their horns rather quickly. The put/call ratio zipped right up to 110%, the highest reading since mid-October. Keep in mind that high daily readings only help to push the 10-day moving average of the put/call ratio upward, and a rising moving average tends to be bearish for the market.

For now it seems everyone sees the 200-day moving average line at 2060 on the S&P, and they see it as support. I suspect that means we are unlikely to get any sort of panic until or unless we break that level. That would also represent a 3% pullback from the high, which is the sort of pullback that would keep a relative sense of complacency alive in the market.

Source: StockCharts.com

It's curious that once we break a certain level and/or move to the 4% pullback area, folks seem to get more concerned. As they say, there is nothing like a move in price to change sentiment.

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At the time of publication, Helene Meisler had no positions in the securities mentioned.