Although the market has been progressively rising, I am still not convinced of the movement. Over the past four days, we have had a net gain of 1.45%, but intraday (if you bought at the open and sold at the close) you would have lost 1.50%. All of the gains have been from opening (overnight) gaps, and each day most of the day was spent in a downtrend. So ... big open, then down the entire day. This tells me that the big guys are selling into strength.
Psychologically it troubles me that just a week ago, people were talking about Armageddon and now they are all talking euphoric end of year rally's ... this trouble's me that the herd can change their thinking so quickly. Tells me trouble is brewing.
I also don't like that we are in the same place as we were 14 days ago, but in that time the market has dropped almost 8% and then fully recovered the same amount. These are huge moves in such a short time! The volatility is disturbing at best, and usually points to potential underlying problems.
Out of these past 4 days, we have had a doji candlestick on 3 of them. A doji is when the open and close are roughly the same, the pattern looks like a cross. Doji's point to indecision where really doesn't know what it wants to do.
Also, on three of these four days the VIX has risen. The VIX usually rises when the market falls. A rising VIX indicates fear in the market, and usually rides in step with the market ... market goes up, vix goes down ... or market goes down, vix goes up. But over the past 3 days, the market has gone up and yet the VIX has gone up as well. There is a lot of discussion as to whether the VIX is a leading or lagging indicator, but most traders watch it nonetheless.
In terms of strength, one of the indicators I like to watch is the ratio of new high's to new low's in the market. If you look at the 1500 stocks that I watch daily, are there more stocks making new highs or new lows. This usually is an early indicator of strength or weakness in the market. Over the past five days, we have proportionately had many more new highs than new lows every day. In these 5 days, we have averaged 77 new highs to only 3 new lows.
Looking purely at price the market has been telling us that it wants to go up, but I don't see much evidence of the strength in my analysis. In fact, today we made a lower low and did not make a higher high on all indexes. We are struggling at a number of resistance levels (moving averages, existing channels and trendlines, fibonacci) right above price) and although we seem to keep testing them, we can not hold above these levels for very long
I am not necessarily seeing weakness, I am just not seeing any strength especially considering how strong the move was over the past 8 days (up over 8%) ... so to me ... this is clearly a 'sit on the sidelines and wait for more direction' market. I might miss a move up, but for now I just don't see a risk/reward setup that makes sense (in either direction ... long or short). With all this said, I do have some long positions, but nothing substantial and I am at this point not adding any more. I will hold them until I see definitive weakness.
As you probably gathered from above, I am feeling more bearish about the market than bullish, but until the market gives me some direction ... I sit on the side. A "wait and see" market.
Bottom line, I'm just not willing to go out on a limb in either direction at the moment.