Equities markets search for support as McClellan Oscillator shows market internals, breadth doing the same

The equities market indices and many sectors are trying to establish support, and in doing so are trying to work out whether today's a consolidation day or can pull out an upside surprise for all who are seeing the bearish head-and-shoulders pattern. Many analysts are also trying to read the early "tea leaves" to determine whether, in a decline, the market gives clues that it wants "only a H&S pullback" and not something more bearish. Today's efforts can be seen not only in price patterns but also the insight into market internals and breadth afforded by the McClellan data. Below are the McClellan charts courtesy of DecisionPoint.com (via Stockcharts.com) for the NYSE ($NYA) and Nasdaq; the data are current through the close yesterday. As usual, I've added my trendline markings. These markings illuminate how the markets reached a point yesterday that's consistent with testing for support. Clearly the breakdown that's not only under moving average support but also under the zero line in the McClellan Oscillator confirms the markets are really struggling now. The Nasdaq McClellan Oscillator even fell underneath an upward angling trendline that it had "respected" previously. But its Summation Index has touched to the zero line - not below it yet - and its ratio index (bottom window in the Nasdaq McClellan chart) seems to be testing a comparable upward sloping trendline. As for the NYSE McClellan chart, it's showing somewhat more strength by testing those comparable trendlines I've marked, and its Summation Index - while downsloping - hasn't gotten to the zero line yet. What does all this indicate?

My take is that it documents the feeling that we're getting from the markets right now, they are searching for support and the Nasdaq has some work to do in the near-term indicator to get stronger. These do give the picture that the markets can rebound. But, these breadth strength indicators by testing these levels now, juxtaposed with price, is an early clue that if the markets do lose the trendline support in price, the associated loss of trendline support in the McClellan data can be an early sign that market declines may not halt at the "typical" H&S simple pullback levels. The market strength really is giving out. If the Summation Index in particular doesn't get support at the zero line, then it will be a warning that the markets may turn more bearish over the coming weeks than many are expecting right now.