Bullish vs Bearish Indicators – Who Has the Upper Hand?

Recent articles highlighted various individual indicators. Some were bullish, but the majority was bearish. This article reviews previously discussed signals and boils them down to one outlook.

In recent weeks we’ve examined various indicators, studies, gauges and seasonality. Some bullish, some bearish. But what is the balance? Does the weight of evidence suggest higher or lower prices?

Listed below is a summary of articles designed to help form an educated and balanced opinion. Articles are categorized as bullish or bearish based on their implications. >> click here to view all the links to prior articles.

Bearish:

April 23: Dow 16,000! Headline Indicator Sways Into Bearish Territory
Barron’s Big Money Poll delivered the most notable sentiment extreme in 2013. Professional investors’ record bullish outlook is bearish for stocks.

April 17: Did ‘Sell in May and Go Away’ Arrive Early?
Based on consistent seasonality, the March 31, Profit Radar Report suspected a mid-April and May double top. The mid-April high is in and the ‘double top’ appears to be in the making.

April 16: From Gold Glitter to Jitter: An Explanation for Gold’s Historic Decline
Falling precious metals prices often foreshadow weakness for stocks.

April 10: Bearish Buying Climaxes are Adding Up for Stocks and Even the S&P 500
Buying climaxes are a sign of distribution, which is bearish for stocks. Discussed in detail was a buying climax in particular for the S&P 500. The most likely outcome was a delayed (1-2 weeks) decline, which is what occurred.

April 4: Yield Spread Between Junk Bonds and Treasury Bonds Hits Alarming Level
The ‘risk on’ trade has reached a level that’s caused trouble in the past.

April 1: AAPL, GOOG, AMZN and MSFT – Tech Sector Giants Turn Laggards
The lagging behavior and lack of leadership by ‘Big Tech’ suggested that the rally is starting to run out of steam.

Bullish/Neutral:

April 17, Profit Radar Report: “There are open chart gaps at 2,850 for the Nasdaq-100 (and 1,588 for the S&P 500). In recent years all chart gaps have acted as magnet and the Nasdaq-100 (and S&P 500) should come back to close those gaps. We’ll close our short positions at 2,740 – 2700 (and around S&P 1,540).”

April 19: Weekly ETF SPY: Russell 2000 ETF – IWM
The Russell 2000 and S&P 500 bounced off major support. That’s bullish … as long as support holds.

April 17: Despite Extreme VIX Movements, Option Traders are ‘Lukewarm’
Option trader sentiment has established a solid track record as contrarian indicator. Contrary to the deeply complacent readings of the VIX, other option-based indicators (like the SKEW index) aren’t even close to bullish extremes.

April 11: Retail Investors Turn Record Bearish as S&P 500 Climbs to All-time High
The most volatile of sentiment gauges fell to a bearish extreme. Viewed in isolation that’s bullish for stocks, but only viewed in isolation.

The April 17 VIX/SKEW article summarized the overall situation as follows:
“To an extent, option-trader sentiment is in conflict with other bearish sentiment extremes discussed recently. When sentiment indicators conflict, technical analysis and support/resistance levels become even more valuable.”

Technicals highlighted key resistance at 1,593 and key support at 1,538. As per the Profit Radar Report, we went short the S&P 500 once the S&P 500 dropped back below 1,590 (April 12) and covered our short positions at 1,540 and 1,562 (April 18 and April 22).

Based on the weight of evidence, there will be a short windon with a low-risk opportunity to go short.

How to go short with minimal risk is revealed in the Profit Radar Report.

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