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Who's Afraid of the Big Bad Bear\?

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Judging by today's market action, not anyone. That drop at the open found willing buyers just above uptrending support and it was good enough to drive the DOW back over 8600 this afternoon. Similar to the strength seen in the broad market, the NASDAQ caught a solid bounce this morning right at 1500, and at 1515 currently, is holding near the top of its daily range.

Interestingly though, none of the major indices have been able to challenge their highs from earlier in the week, as market participants continue to show their willingness to buy support, but lack the conviction to break decisively through resistance. The volume picture is rather telling here, as with less than an hour left to trade, volume on the NYSE is just barely cracking over the 1 billion share mark, and the NASDAQ has seen just over 1.2 billion shares trade hands.

Despite this lackluster showing, internals have been strong throughout the day. On the NYSE, advancing volume is ahead of declining volume by nearly a 3:1 margin, while on the NASDAQ it is a bit stronger at 3.5:1. The advance-decline line is similarly positive, with the NYSE posting 23 gainers for every 9 decliners. Over on the NASDAQ, the ratio is running 20:11. New highs also continue to power ahead of new lows as well, with the NYSE running at 201 new highs to a paltry 14 new lows. NASDAQ high/low ratio is 147:19

Strong internals and light volume have produced the predictable result of markets moving higher but without conviction. We can see complacency starting to drain out of the market though, with the VIX currently at 22.70, just above its intraday low of 22.38. Should it end the session here, it would be the indexes lowest closing level since the end of May last year. As we move into the very tail end of earnings season, the bulls are running out of ammunition with which to drive the markets higher. But at the same time, the bears haven't been provided with that smoking gun to motivate leaning heavily on the market.

So we're left with an environment where the dips are bought, but breakouts have little momentum behind them. The early-week move above the top of those bearish ascending wedges early in the week appears to have failed, but the lower ascending trendlines are still very much in play, as evidenced by today's rebound from the lows. More than a couple more days without a decisive downside break and the bearish wedge patterns will likely have lost their relevance, meaning we'll have to start looking for new patterns to interpret the action in the broad market as we head into the middle of May.

Mark Phillips

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