NYSE BULLISH PERCENT INDEX TURNS DOWN -- 13 AND 34 WEEK EMAS HAVEN'T CROSSED -- DON'T CONFUSE SHORT- AND LONG-TERM VIEWS -- THE 200-DAY AVERAGE HOLDS THE KEY TO SHORT-TERM MARKET DIRECTION

BPNYA TURNS DOWN FROM OVERBOUGHT TERRITORY ... I recently showed the NYSE Bullish Percent Index (BPNYA) having reached overbought territory over 70. the BPNYA is the percent of NYSE stocks that are in point & figure uptrends. I suggested that a drop below the May trough at 68 could signal a short-term top. Chart 1 shows that downturn has taken place as the breath indicator has fallen to 65% and formed a small "double top" in the process. Chart 2 shows the point & figure version of the same indicator. A three-box reversal into the down column also took place this week. That's another sign that the current uptrend is losing some breadth momentum. [Arthur Hill showed a similar downturn in the number of NYSE stocks trading over their 50-day moving averages]. Those are at least two reasons to be a little more cautious at current levels.

Chart 1

Chart 2

WEEKLY EMA LINES HAVEN'T TURNED BULLISH YET ... A couple of readers asked about this week's upside crossing of the 13-week and 34-week moving averages. That did indeed take place. My version of that indicator, however, is based on "exponential" moving averages. Chart 3 shows that no bullish crossing has taken place with the 13- and 34-week EMAs for the S&P 500. That EMA combination has been bearish since the fourth quarter of 2007 with no upside crossings since then.

Chart 3

DON'T CONFUSE SHORT AND LONG TERM TRENDS ... One of our readers complained that my Tuesday message (which called for a downside correction) came two days after writing a bullish analysis of the NYSE Advance-Decline line. The reader is confusing my short-term and long-term views. My message on the previous Friday (based mainly on Elliott Waves) suggested that the key to the trend of the S&P 500 was its ability (or inability) to decisively clear its January peak. I suggested that my work favored a correction from that resistance barrier. Hence, my more negative short-term comments. The point of showing the upside breakout in the NYSE Advance-Decline line was to make the point that any pullback from current levels would be part of a bottoming process (a buying opportunity) as opposed to the end of bear market rally (a selling opportunity). A more careful reading of my recent messages will bear out those views. While I've turned more cautious on the market's "short-term" trend, I continue to believe that the market's "long-term" trend is more positive.

Chart 4

MOVING AVERAGE LINES HAVE HELD SO FAR ... So far, the 200-day moving average (red line) has acted as a support level for the S&P 500 as shown in Chart 5. That's a good sign for as long as it continues (although the 50-day ma remains lower than the 200-day and the latter is still dropping). The hourly bars in Chart 6 (as of noon on Friday) show the S&P 500 SPDRS (SPY) meeting overhead resistance ranging from 92.76 to 93.19 (927-930 in the S&P 500). The late week bounce has come on light volume. Failure to clear that initial resistance barrier near 93 could result in another test of Wedneday's low and the 200-day average. Needless to say, the ability (or inability) of the 200-day ma to hold will determine whether or not a more serious pullback is in the offing.

Chart 5

Chart 6