What:  We will move to 50% Bearish if the S&P 500 trades below 1128, and move to Neutral if it closes above 1150.

Why:  With a lack of market-moving economic reports, this week should be held captive to a deluge of earnings reports from financials and tech.  The market has really struggled lately after Intel's release (see Friday's report), and that took hold yet again, but a surprise from a major player this week could upset the pattern.  We do have some oversold readings in the STEM.MR Models for the S&P and NDX, which have been excellent buy signals for the past few months.  As always, though, I'll be watching for periods like mid-October, when we couldn't rally well from these very short-term readings.  That's almost always a sign that more selling pressure is ahead, as it was in October.  Most everyone I've seen suggests that a win by the Republican challenger in the Massachusetts Senate race will be a catalyst for at least a knee-jerk bounce in equities.  It very difficult to handicap financial forecasts based on one politician perhaps being a little less crooked than the one prior, but I do suspect we would see a jump in the overnight futures should Mr. Brown prevail.  Whether it's enough to cause a lasting move, I doubt.

What:  We will turn 25% Bearish if the S&P 500 closes below 1128.

Why:  In March, we discussed a large number of reasons to expect an imminent rally of one to three months' duration, or perhaps even more.  The rally exceeded all kinds of expectations, and on an intermediate-term time frame we haven't seen too many reasons to expect an imminent end.  Now we have the Dumb Money Confidence at 75%, and the Smart/Dumb Spread at -38%.  Every time we've seen this kind of extreme in the past 15 years, any further short-term strength (over 2-4 weeks) was reversed longer-term (over 1-3 months).  We expect the same this time around, so it's just a matter of waiting to see if and when price action starts to crack.