Goodbye Bear - Hello Bull ??? !!! ???

My stop on my Bearish view of equities in recent weeks has been 1075 on the S+P500, this does not mean it is dead, however it on at best life support. In the meantime I have started to explore the bullish side of the case. - Last week I alluded to the bounce and the possibility of a larger bullish move (Click here to see) , at the time I saw this as stating the bullish case, but still favoured the downside. I realise we may be in a headfake, after all Mr Market likes to make it as hard a possible to make money out of him, and a headfake would certainly fit with that.

Further to the above, something worried me when I looked at my analysis showing various Equity markets last week. in the post titled 'Equity Topping Patterns - Everywhere' (quite ironic really). I had tried to justify what I thought were Head & Shoulder confirming patterns in various Global Equity Markets. However I now think I was guilty of trying to make non-confirming patterns fit as confirming patterns. As I look at the various overseas markets again, I believe that most of them may have actually been taking the form of a falling Wedge pattern, these are actually Bullish continuation patterns. Furthermore on the next day, when I looked at the possible bullish case for US stocks, which I refered to above, I stated this may also be forming a bullish wedge. (FWIW I also hate downward sloping necklines anyway on Head & Shoulder patterns such as the NYSE and SP500 have).

In light of this I have decided to look at the Advance-Decline line on the NYSE. I have posted 2 charts below. The top chart is the NYSE cummulative Advance-Decline line, the second chart is the NYSE Composite Index for the matching period. (CLICK ON CHARTS TO SEE ENLARGED)

The ultimate level of the Advance-Decline line is not an issue for me, though such a huge divergence between new all-time highs on one index and not the other is slightly baffling. - No the issue for me is what happens at corrections in the Advance-Decline line. If one looks at the above an upward sloping correction, it is usually consistent with a bear market, and a downward sloping correction is usually consistent with bull markets. Obviously at the turn of a trend this is going to be crucial since there will be conflicting signals. The recent move lower in the NYSE advance-decline line appears to me now to be a correction. In fact one can go further in saying that it appears similar but the opposite to the correction at the bottom of the downtrend in late 08/early 09. - This would be interesting, since if it did unfold as such, it would imply ; a) a test of the recent highs from April and quite possibly a break though there b) That this past couple of months, may actually be part of a larger topping process which has a few more months left to go...

Just to re-iterate. I am now neutral. My bearish analysis of recent weeks has served me well, however it may soon be past its 'sell-by' date. I am looking at a potential bullish scenario. I will elaborate on this in further posts. - If my analysis does prove to be correct, then this may have major implications for the 'Risk-on' v 'Risk-off' trade across varying markets.