Indicators of equity market "internals" show strength now replaced by deterioration

Equity market internals for the S&P 500, Nasdaq and NYSE have deteriorated, as shown by these charts we'll review. My chief concern is not just that the indicators are at low levels, but that they've turned down from very high levels. I wonder whether this means there's "so much room down there below" that the markets themselves are vulnerable to retesting the March lows instead of doing a simple pullback. There are a lot of people now thinking that the markets will trace out just a pullback and then move to much higher levels. One way this is described is making the right shoulder of a reverse head and shoulders (H&S). We need to keep track of whether the markets will retain enough strength to do that, instead of just plumbing new lows. Here are various charts depicting this. For example, the bullish percent chart for the S&P 500 (BPSPX) which tracks the ratio of stocks in this index that are above their 50-day moving averages, recently reached a high even higher than in October 2007, and has rolled over to point downward:


Indicators showing advancing versus declining volumes show that the internals have definitely weakened, falling under the zero line to go negative and still pointing down as you can see on the NYSE advance/decline (NYAD) and Nasdaq advance/decline (NAUD) charts below:

The McClellan charts also tracking market internals strength based on advancing versus declining volumes, courtesy of DecisionPoint.com via Stockcharts.com, show the Oscilllator was turned away again from the zero line to point down for both NYSE and Nasdaq. The Summation Index and the index ratio for both also continued to weak (and the ratio for the Nasdaq actually fell under zero). I marked a few lines on the Nasdaq McClellan chart to show where we should pay attention to see whether the Oscillator and ratio get support nearby, and also if a pullback or move down is deep enough, for the Summation Index if it moves under its zero line. Falling under the zero line is already bearish. Since the Summation Index is more forward-looking, however, and remains well above zero, it suggests that whenever the indices move up again (from a pullback OR new lows), they can rally more strongly than we already saw from the March lows.

There is a note of caution for bears to keep an eye on - the TRIN is well above 1.2, meaning that the market is technically oversold on this indicator. However, this TRIN is just a short-term indicator so it doesn't necessarily signal intermediate-term or long-term direction. Also, it is possible for the TRIN to remain looking oversold in a bear market for longer than one might normally expect. So we might just keep an eye on it and see if and when it starts pulling down again.