Charts: A Downer from Carl Swenlin

An excerpt from one of the best technicians going, Carl Swenlin of DecisionPoint.com, is below. I have to say I find what he says very much worth noting; I've talked recently about nibbling in this market, but I don't like it when a dramatically oversold asset can't find a way to rally. His remarks follow:

There has been, and continues to be, considerable speculation regarding whether or not the market is forming an important bottom. It is still possible that bottom formation is taking place, but I am beginning to see evidence that maybe it is a continuation pattern instead. A continuation pattern is a consolidation phase that takes place before the market "continues" in the direction it was headed before the consolidation began. In this case the direction is down.

The S&P 500 rallied over 26% from the October low to the high that occurred a mere three days later. An initial impulse of that magnitude should have resulted in prices moving higher after a short pull back; however, nearly all that gain was given back within two days and the sideways trading range began to evolve. The trading range is about 20% wide.

Another problem I am seeing on the chart below (and in other medium-term indicators) is that the sideways churning is helping to clear the severe oversold conditions that should have helped fuel prices moving higher. In other words, the implied internal compression of oversold readings is being absorbed by the churning rather than being applied to driving a rally.

More bad news, while the indicators are still well below the zero line, the bear market has depressed the overbought side of the range to the extent that the current readings should be considered neutral, not oversold, and, as the indicators approach the zero line, they will be overbought again: