Conflicting indicators

Bears thought they would get a break today from the disappointments after hours from Microsoft and Amazon last night but futures are slightly green so far as I write this. You might be asking yourself "what the hell is going on here, how can this market be so strong?" Although I expected a vicious snapback a couple weeks ago I surely didn't expect the market to bust out to new highs. It's been my experience that anytime you see such confounding strength or weakness in the market there is a fundamental shift that is finally being acknowledged by investors. In this case that shift is that the economy/earnings has in fact bounced significantly. Whether it's sustainable or not is another issue.

I see so many retail investors talking about how Goldman Sachs and the "PPT" has been propping up the market. That's bullshit. Why then did the "PPT" allow the market to have one of it's biggest crashes ever last year. These conspiracy theories are an excuse to justify the money these people have lost shorting the market. The sooner you take responsibility for your losses the better off you will be.

I'm noticing some really strange conflicting signs with the indicators.

The bearish signs:

1) After yesterday's surge the market is just as overbought on a ST basis as it was in early January which was the largest ST overbought reading I have ever seen. As you may know early January turned out to be a major peak.

2) NASDAQ/NYSE volume ratio has spiked to 2.3 which I have warned in the past was a bearish sign. The last we saw such a spike was mid June and the time after that was July 1, both times coincided with ST tops.

3) The VIX is forming a compressed bullish wedge which suggests a spike is immanent.


Bullish signs:

1) Market action is exceptionally strong and is suggestive of long term money entering. Yes, I know everyone is talking about low volume, but this same complaint was mentioned in the summer of 2003.

2) The rydex ratio has flip flopped. Just when it looked like we were seeing capitulation from the rydex ratio as of this morning it popped showing an significant increase in bearishness. In the face of a strong market that just make new YTD highs that's actually a very strong contrarian bullish sign....but it just doesn't make sense at all with the other bearish indications I noted.


Conclusion: the market is far too overbought for it to make another run up from here without a least a day or 2 of rest. At the same time, any correction will likely be limited until the rydex ratio unwinds big time.

When conflicting situations like this occur I tend to play it very small or don't play at all until things line up. I'm thinking today will be a choppy, boring day but that's just a wild guess at this point.