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Since we’ve got some time on our hands this morning before Yellen & Co. do something they haven’t done in nine years – raise interest rates – I thought it would be a good idea to pick up where we left off on our run-through of the important market indicators.

If you will recall, yesterday’s analysis found that both the trend and momentum indicators were wallowing in a sea of red. And while both oil and the S&P 500 did manage to rebound a bit so far this week, the bottom line remains the same at this point. You see, a review of the S&P 500’s daily chart shows that the index put in both a lower high and a lower low since the beginning of November.

This folks is the very definition of a downtrend.

Of course, how long it lasts is another question altogether. If investors have learned anything over the last 14 months it is that what goes up must go down and vice versa – it’s just a matter of time. And with the favorable holiday seasonality about to kick in, well, nothing would surprise me at this point in time.

S&P 500 – Daily

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It is also worth remembering that even in the most vicious bear markets, prices don’t move in a straight line. As such, one must always be on the lookout for reversals. So, in order to help be prepared for the inevitable reversals, we developed a group of early warning indicators designed to tell us when it might be a good idea to get ready to “go the other way.”

Below is a summary of our “early warning” indicators and models:

The good news is that stocks came into this week oversold and there was a fair amount of fear in the air. In short, this situation set the stage for stocks to turn around and go the other way in the near-term. But how far they go (in either direction) is often determined by how extreme investor sentiment becomes.

In case there was any doubt, yes, there is a model for that.

What 28 years of market watching has taught me is when sentiment becomes extremely negative and stocks get oversold from both a short- and intermediate-term perspective, it generally means that whatever was spooking the market at the time is probably close to being priced in. In other words, by the time stocks become oversold and sentiment gets to extremely negative levels, all those that wanted to sell are likely to have already done so.

Unfortunately, our sentiment indicators are not at extreme levels at this time as two are neutral and one is actually still negative. This leads me to look for one of two outcomes in the near-term. First, stocks could easily fall farther before the rubber band gets stretched far enough to set up a meaningful reversal. Or… it could mean that a weak, oversold bounce may be close at hand. And unless the bulls can keep their train runnin’ here, this could easily explain the action seen on Monday/Tuesday.

The important point is that while price and momentum are clearly negative, investor sentiment isn’t quite there yet. And since the best moves occur when sentiment becomes extreme, we can’t make a check mark here.

Next, let’s step back from the blinking lights and look at some big picture stuff. Below is a summary of the key external factors that have been known to drive stock prices on a long-term basis.

The most important thing to take away from this group of indicators is that until just recently, there were four green boxes and only one red box. However, both the Monetary and Inflation Models have moved to neutral. And while this, in and of itself, is not a reason to be overtly bearish, it is a reason to consider curbing your enthusiasm about the upside potential.

The good news is that with rates likely to remain low for the foreseeable future, relative valuation should remain the bulls’ best friend.

And finally let’s not forget that there are only 9 more shopping days before Christmas. And in case you’ve forgotten, the tailwinds from positive seasonality usually start to blow pretty strongly right about now.

So let’s sum up. The trend remains negative. Momentum is negative. The early warning indicators are improving but are not pounding the table at this time. And then the big picture, external factors are okay (i.e. supportive of the bulls), but they are most definitely not as strong as they were.

So, while this remains a bull market until proven otherwise, it is probably a good idea to play the game a bit more cautiously at this time.