True, things have gotten a little more bearish in recent days. The FTSE 100 and FTSE 250 have both entered downtrends on their swing-charts, along with France's CAC 40. The Dow Jones is on the verge of joining them and is also hovering around its 200-day moving average, perhaps the most widely used line for defining up or down trends of them all.
FTSE 100 sell-signal
In terms of the Dow Theory, Wall Street has just entered a 'secondary reaction' against the primary trend, which remains upwards. This is not a significant development in itself. The primary trend would change to downwards if one of the S&P 500, the Dow Industrials and Transports rallies by at least 3 per cent, and then the S&P and one of the other two drops through their correction-lows to date.
Dow in retreat
Secondary reactions have happened often throughout this bull market. According to Jack and Bart Schannep (www.thedowtheory.com), the present uptrend may have suffered more of these phases than any one before it. The last one was only in August. One take on all this stalling might be that the overall move is running out of steam and that a major reversal is on the horizon. It's not my reading, though.
DAX's reluctant retracement
I have actually been quite heartened by the lack of venom in the selling since September's highs. A case in point is Germany's DAX, which rallied 8 per cent in just 11 sessions to its recent peak. Since then it has shed just 3 per cent over 12 sessions. The reluctance on the part of the bears is palpable. Even the FTSE 250, which is down by 4.5 per cent, has seen little volume backing up the negativity.
Low-volume selling in mid-caps
The markets fell much harder around the time of last stand-off over the debt ceiling in July 2011. But there was much more going on at that time. The eurozone was in turmoil over Greece, economic data seemed to be pointing towards recession, and the Fed had taken some time off from its quantitative easing spree. Today, none of those things apply. I don't rule out some more jitters, but I don't expect markets to freefall.
My stance in my morning Outlook recommendations over recent days has been mildly bearish. It is hard to take meaningful positions when the trend is so shallow and choppy. Much more precise timing is needed and the payoff is smaller than usual. That's not a tempting proposition from where I'm standing. The gains that I expect to follow this interlude should be a different story, however.
The S&P and FTSE are already nearing levels where previous rallies have got under way. The former is at its lower daily Bollinger band, while the latter is below its 200-day moving average. I wouldn't complain if this went further, of course. A deeper retracement - such as last autumn's 8-9 per cent effort - would set up the bigger rally into the end of the year that I believe we are due. If the rebound comes sooner, I won't hold back though.
