Pullback before the next bounce: stock market status in technical and sentiment charts

Sentiment and some of the technicals are getting ready for a bounce. But the stock market is in pullback mode still, while getting ready for the potential of a bounce. We'll take a look at some of our favorite technical and sentiment charts, below. First is the S&P 500 index ($SPX) daily chart with simple trendline markings and technical indicators. Bottom line as I read these, the stock market is positioning for a test of support where it can bounce from the trendline and have the technicals including breadth and buying volumes kick in and move positive. From a swing trader's perspective it's still bearish, as shown by the bullish percent ($BPSPX) chart and McClellan Oscillator chart that appear next. But these too would not rule out, and maybe support, an oversold rally type of bounce that daytraders and fast nimble swing traders (two or three days on a swing) could scalp for quick long buys, while position investors and longer-term swing traders could sell into strength. Another indicator that the market is getting oversold is the Arms index $TRIN chart (the next one, which I display on a black-field background). When its 10-day moving average is above 1.2, as it is now, the market us technically oversold and looking for a reason to rally even for a short-term bounce. It would be ideal if we see another dig down to get trendline support and then try for $SPX 1206 or thereabouts - we'll see! Just expressing my take on it.

Sentiment also supports that idea. My $VIX chart at bottom, below, shows that the volatility index bounced from a back-tested downtrend line but now approaching another downtrending channel line. The $VIX could well test and drop from that resistance. You can also see in the $CPCE chart just above my $VIX chart that the equity-only put-call ratio has skyrocketed. This spike in bearish sentiment is setting the stage for a bounce rally too. Often the best moves are slightly delayed from a spike like that (true in the $TRIN too), so don't be surprised if there's some additional stock market price weakness first before a good move.

So with these sentiment and technical indicators, the market is readying for a good bounce that can last a few days at least. Besides, it's common for the area around the 26th of each month to be a "fund manager's buying special" - a relative trough to buy in anticipation of new month-new money coming in a few trading days later. That concept just adds to the mix. We're still tilting to the idea of another low later this month, before the real Santa rally. So how you trade or invest around these probabilities depends on your timeframe and style. For KI$$ positions, there's no reason yet to go long. Faster, more nimble folks may want to play it as it comes. Either way - happy market navigating!