Short-term Outlook:  25% Bearish (since June 25, SPX 918)

Intermediate-term Outlook: Neutral (since April 9, SPX 843)

Models Are Starting To Get Stretched

06/25/09 3:23 PM EST

The market has bucked the usual tendency following FOMC days, with solid gains so far today.  I touched on my concern about this kind of thing in the morning comment today, with the nearly unprecedented weakness we had already seen following the announcement yesterday afternoon.  That kind of took the wind out of the bearish sails.

As it stands, the rally has been enough to push our shortest-term guides into overbought territory, with the intraday version of the STEM.MR Model currently at 20% and the Cumulative TICK at +3700.  With the exception of the failed overbought signals coming right out of the March low, the S&P has struggled to maintain its short-term upside momentum the 7 other times we've hit or approached overbought in that model.

We also have a few signposts that are sticking out today, such as the tendency to under-perform after three straight up days during a bear market.  We've also seen consistent weakness when the S&P rallies at least +1.5% but the Arms Index (also known as the TRIN) is over 1.0.  That means that there is relatively less volume flowing into up issues than down issues, a sign of less than enthusiastic buying pressure.

We're seeing some signs of a (weak) trend day, so I'm not sure how likely any kind of major reversal is before the close, but as the S&P fills its downside gap from Monday morning and flirts with last week's highs in that 925ish zone, I'd be surprised to see a sustained breakout above there in the coming day(s).

SHORT-TERM SIGNPOSTS (USUALLY LOOKING AT THE NEXT 1-5 DAYS)
BULL / BEAR	SIGNPOST	% POSITIVE, #, PROFIT FACTOR	TIME FRAME	TRIGGER DATE	NOTES
	S&P up >+1.5% but Arms Index is greater than 1.0	22%, 23, 0.2	2 days	06/25	The last 13 instances were all negative
	Up 3 days in a row during bear market	39%, 181, 0.4	2 days	06/25
	S&P gaps up +0.5% on an FOMC day and closes at least +0.5% as well	10%, 10, 0.03	2 days	06/24
% Positive:  the percentage of time the S&P was higher the given number of days later #:  the number of occurrences in the study Profit Factor:  using long trades only, this is the gross profit made from winning trades divided by the gross loss from losing trades (anything above 1.0 suggests an upside edge, and the bigger the better)