"T's" and technicals combine with VIX and sentiment to offer new insights for market analysts

Sentiment has become significantly more bearish as the stock market became oversold again last week. There are several methods to see this including some you probably haven't heard about yet. For starters, Terry Laundry has launched new features at his T Theory™ Observations: Terry Laundry's Weekly T Theory™ Observations - Week of May 21, 2011 at http://www.ttheory.com/. His theory - which he's been applying and refining for decades - is a way to measure breadth and market internals strength, combined with time and Keltner-type channels, to project highs, lows, and probable price levels, in the S&P 500 index, bonds, and gold. You may want to bookmark his new public charts page at Stockcharts.com, and of course you can always find his T Theory™ website right here in the sites list at the right site of the page. If you look at his charts and hear his audio, you'll understand why he's very cautious now, AND projecting a high of significance in June.

Another technical and sentiment resource I like to keep an eye on is the weekly article at Schaeffer's Research (and you can get on their email list to receive the teaser and link). This weekend it's Monday Morning Outlook: Choppy Trading Ahead as Bulls and Bears Battle It Out | Market Observations | Schaeffer's Investment Research. Todd Salamone in particular, and nowadays Rocky White as well, provide solid analysis and predictive outlooks each weekend. I don't know how to sum up their work this weekend, so read it for yourself and see their info on high bearishness (a contrarian bullish signal), a volatility index (VIX) warning, seasonality with Memorial Day approaching, and more.

Let's take a look at my own VIX charts, below. The daily and weekly both show that the spike up last week was within a consolidation range after a larger downtrend since November 2009, and more recently since approximately May 2010, and since March this year. What this means for your trading depends on your time frame; longer-term investors will want to see if it makes a higher high, and moves above the Bollinger Band and moving average resistance. The VIX level and its indicators on these charts show that it's testing resistance. It would be possible for it to move higher, and then (perhaps late this week?) start making a reversal along with stocks starting up again. If we see - perhaps in June - the VIX making a higher low while the stock market makes another high, that would be yet more of a warning sign.

The week ahead does indeed look dicey. There are good indicators pointing either way. For myself, it looks to me like the stock market wants to push higher even though there are possibilities that Thursday (the 26th) will provide the best tradable low. If so, we'll have to see if it's a lower low or higher low. Below is my own $SPX chart. The steeper trendline looks wrong now, and last week's low looks like it touched a line that would parallel the last two swing highs. I'm intrigued by the possibility that we may be seeing an upward parallel-channel diagonal in the making. If last week's low holds, this line could point to another swing high in early June.

The McClellan Oscillator ($NYMO, in lower indicator window on the chart) did end the week resting on an uptrend line I'd marked, after bobbling through it during the week. Maybe it'll "behave" and march upward, giving strength to the stock market in order to position for an early June high to be a higher high. We'll see ... and there's more to present here later today, so we'll see how it all looks.