$SPY – the slow roll over?

Given how sprightly the rally since December has been it’s hard to call a top. Actually it’s hard to call a top anytime but bear-market rallies are especially tricky.

Weeks ago it was suggested here this would be the rally to make everyone one believe the bull market has resumed, and it has been that kind of rally.

There is famous, familiar chart of investor emotions in the market (see below) that shows the various stages of market emotions from despair to euphoria and back again (see below). It’s worthwhile review that chart every so often and ask one’s self how am I feeling now. This is especially true for long-term holders and retirees who have their savings tied up in the market.

Looking at the chart below I would suggest we are at the “Return to Normal” stage. For any swing trader who played the upswing this has been a fantastic rally. For investors it’s been a big sigh of relief.

But… There are signs now that sigh may be about to become a gasp.

Long-term breadth, as measured by the McClellan Summation Index, the most important indicator of mass market psychology, turned bearish four days ago after several warnings from the declining highs on the McClellan Oscillator itself. My nifty-50 stock list has failed to get overbought since the rally’s kick-off’s first few days. While the indexes have worked higher, the stocks have rotated and paused and in some cases fallen under the surface (take a look at the rollover in the banking sector).

Weed stocks lead again (check out CRON up 87% on the YTD summation index run up or GWPH up 71%). While there’s a growth logic to the marijuana sector, that’s still just as crazy as the dot-com bubble of yesteryear.

Despite all those warnings until prices follow internals and drop with conviction (which could happen any day now, even tomorrow), and the VIX jumps back above 15 (it closed at 14.74 today), the sell off may not happen, and if the SPX, or in this case the SPY run up past the resistance at recent highs, it might go to all time highs before the bear market resumes.

Doubt that but we’ll see.

(click on the chart for a larger view)