The bad news keeps pouring in and it is staggering.  Bernie Madoff's fraud, Ecuador 'choosing' to default on its sovereign debt, and the UAW effectively killing any chance of an auto bailout with their greed are all dominating the headlines, yet the market is holding up.  Is this bullish?  Normally yes, but my indicators tell a different story.

What many are missing that are trumpeting recent market behavior as bullish is that there has been NO VOLUME CONFIRMATION that the market has been discounting these stories.  Yes there is much bad news already 'baked in' to prices, but that does not mean that we are putting in a bottom here.  It simply means that we could be consolidating before another push lower.  When markets bottom after sharp declines, there are volatile swings accompanied with VOLUME.  Recent volume patterns have been anything but inspiring for the bullish case, as elevated volume at market lows shows that buyers are making a stand and are willing to jump in and support stocks at whatever level that might be.  The lack of serious volume says that major institutional players are still not participating, thus the 'fuel in the tank' (volume) is absent to sustain any rallies.    

There are two time cycles that come into play on the S&P (a 24 week and a 64 week) that come into play in late December/early January.  If prices can levitate until then - which is very possible due to lighter volume and the absence of real selling pressure over the holidays - we could be in for another ugly January, possibly worse than last year.  If prices decline into that time frame, we could see a rally.  While cycles do not necessarily mark trend changes, they do cause turning points, whether temporary (a few days) to something longer lasting (a few weeks).

Until the downward channels are broken, and until the indicators show evidence of real buying, the trend is down.  Remember that should this market turn, there will be plenty of chances to jump on board.  The typical market advance after a bear market is 37% in the first year.  Do not be a hero here, let the institutions clear the road first before jumping back in.  In the words of the immortal Art Cashin - "The second mouse always gets the cheese". 

I am showing two charts here - one of the Nasdaq Composite (first), and one of the S&P 500 (second).  They are notated with what I think are the important points so I won't blather on here describing what is readily evident by the charts.  My apologies for the misspell on the Nasdaq chart, but the point is clear.