FINANCIAL SPDR THEATENS FOUR-YEAR LOW -- NYSE SUMMATION INDEX IS STILL IN BEAR TERRITORY -- THE ONUS IS ON THE BULLS TO PROVE THEIR CASE

NOT THE BEARS ... I've tried to avoid commenting on how the financial media (and their steady stream of Wall Street suits) have reported on the market's problems. I heard one radio guest today, however, that caught my attention because he typified the problem with Wall Street and the media. This particular guest was very bullish on stocks. He gave his fundamental reasons why he felt that way. Fair enough. He then commented, however, that the onus was on the bears to prove that they were right (and him wrong). It seems to me that he has it backwards. The stock market has been falling steadily since last autumn and shows no signs of bottoming (see Chart 1). In other words, the bears have been right. In a falling market, the onus is on the bulls to prove their case. Not the bears.

Chart 1

FINANCIALS LEAD MARKET LOWER ONCE AGAIN ... It's the same old story day after day. Financial stocks continue to lead the market lower. So do consumer discretionary stocks (homebuilders and retailers) as well as smallcaps. That's been the market story for months. As Arthur Hill pointed out yesterday, it's hard to imagine the market turning back up again without a bottom in financial shares. So far, there's no sign of that. Chart 2 shows the Financials SPDR (XLF) falling -2.7% today to lead the market lower. The XLF is on the verge of another four-year low. That's wouldn't be a good sign for it or the market.

Chart 2

SUMMATION INDEX IS STILL IN BEAR TERRITORY... One of our readers asked for an update on the NYSE McClellan Summation Index. The NYSI is the longer-range version of the McClellan Oscillator which is a shorter-term version of NYSE breadth figures. [The Oscillator is based on the difference between two exponentially smoothed averages of the difference between NYSE advances and declines]. Chart 3 shows the current position of the Summation Index through Wednesday. I had written in a previous article that, in my view, a minimum requirement for a bull market is for the NYSI to move back over the zero line. Although it did so briefly over the last week, it's back below that line again. Chart 3 also shows the NYSI failing at a down trendline drawn over the April/October highs. The inability to clear that trendline (and the zero line) keeps the Summation Index in bear market territory.

Chart 3