McMillan Market Commentary

Friday, August 26, 2005

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Stock Market
The market continues its rather slow-motion decline, but the cumulative effect is beginning to take its toll. $SPX and other major averages broke significant support this week -- falling below 1220. The next stop should be the 1190-1205 support area. A downtrend -- even a downtrend channel -- has formed on the chart (page 11), and the 20-day moving average is now pointing downward as well.

The equity-only put-call ratios remain on sell signals. This category has been our most bearish, with sell signals initiated near the beginning of August. They have not wavered since. Not only that, but you can see that they have not crawled very far up their charts, so they are not oversold currently.

Market breadth has been less negative than prices or put-call ratios. This is mostly due to continued outperformance by the small-cap issues over the big-cap issues.

Finally, volatility ($VIX) continues its uptrend (see chart, page 11). It finally closed above 14, but that seems to be less important than the continuation of the uptrend that began a month ago. As long as that uptrend is in place, the market will have problems.

In summary, we don't see this decline abating until some true buy signals and oversold conditions arise. That has not happened yet -- a typical market condition after a long advance (such as we had from April to August). The bulls just can't let go, instead preferring to buy each "dip1," at ever-lower levels, until they finally disgorge everything at the eventual, true bottom -- where contrarians pick up the pieces.