Market Update: Good, But Not Yet Good Enough Early last week we mentioned we had a new company profile on the way, to come out later in the week. Needless to say, you didn't get it. I wanted to hold off a few more days, because if what I think is going to happen actually does happen, we'll all be better off for waiting. Don't worry though - it's still coming, probably early this week.  In the meantime, the overall market's strength is the more important story. I wanted to follow up on the subtle breadth and depth clues we introduced last week.    Was Last Week The Turning Point? The question everyone was asking last week was whether or not the 9% gain was evidence of the market's big turning point for the better. The arguments are good, but frankly, we still haven't done anything so spectacular that anyone should be betting the farm. I'll just remind you prior to last week's 9% gain, the S&P 500 had fallen for five straight weeks, losing 21% in the process. Anything will bounce if dropped from high enough. Just for perspective, we're still in the hole by nearly 14% since the early February peak. Now, I'm not saying that to be a wet blanket or rain on the bulls' parade - last week's rally could have been the beginning of a new bull market. In fact, I personally think the odds of last week being the bottom are actually pretty good, primarily because almost everyone else thinks it's nothing but a bear market rally .....seriously. The market has a habit of fooling most of the people most of the time, so I'm inclined to bet against the majority opinion.  However, I'm more of a scientist than a gut-feeling trader (because it's more profitable), so my inclinations don't guide my choices. Facts do. This leads us back to the topic d'jour....   Good, But Not Great If you were looking for a major bullish change in the number of advancing stocks (breadth) and volume (depth), you don't yet have it. Rather than restate the mechanics of the analysis today, I'll just refer you back to last week's edition "Was Tuesday an Omen, or an Oddity?" If you're more of crash-course kind of person, there here goes - you need both sustained bullish breadth and sustained bullish depth to really get the market out of a bearish rut. Last week was positive, but not a game-changer in terms of breadth and depth. The nearby charts of the NYSE's breadth and depth data explain it better than I can with words, so I'll mostly focus on those. What I'm looking for is really simple - a clear shift in the depth and breadth trend. This just means I don't care about one or two days of decidedly-bullish volume or advancers. I need to see enough of those kinds of days over a period of time to tell me things are different. To say the new data flow is a 'trend', all I have to do is look at the direction its key moving averages are pointed - up or down - and how long they've been pointed that direction. (Sorry, the moving average lengths are proprietary.) In a nutshell, the bulls haven't quite seen this happen in theory favor yet. The first chart compares the moving averages of the daily advancers and decliners; the green line shows the 'advancer' trend, while the red line represents the 'decliner' moving average. If a simple crossover of those two moving average lines is a 'signal' (which it is), clearly we haven't seen a fundamental change in the market's direction... we've just unwound a wildly bearish situation. The next chart is still a daily one, only this one compares moving averages of advancing and declining volume, or 'depth'. I think this one really highlights the market's overall problem, not just recently, but for months now. (Sorry I had to scrunch this chart so much, but you can click here for a bigger one.) Like the 'breadth' chart, the depth chart shows the same recent bullish volume trend really wasn't a big deal in the grand scheme of things.... it's nothing we haven't seen before. In fact, the 'trend' is still technically bearish if a crossover of these moving averages is your bull/bear signal. That's not the big deal though. Take a look at the moving average of bullish depth (green) each time it crossed above bearish counterpart; I highlighted all of these in yellow to make it easier to see. In every case for months now, what looked like a bullish effort immediately - and I mean immediately - failed because there was no bullish volume following through. This is a phenomenon that didn't show up on the breadth chart.  Point being, I'm not impressed yet. I won't be impressed until it's clear the bullish depth/volume moving average is going to keep rising once it hurdles the other moving average. That could be several more days, if not weeks, until we know.    Bottom Line (or Words of Wisdom?) I'm not trying to steer you out of stocks - more so the opposite, if anything. I'm just trying to apply an unbiased (not hope-based) approach to making long-term calls based on short-term data, which too many of us did this past week. There's no data-based reason yet to be thinking that way. On the other hand, I also wasn't kidding when I said above that everyone else's certainty of this only being a 'bear-market rally' could be a long-term bullish hint in itself, as bottoms come when nobody really expects them.  We all have to find the right risk and defense balance while it all gets sorted out. For me though, I'm migrating back into the market while using pretty tight stops. I won't be buying anything on Monday though, as stocks are a little overbought. I'll wait for a brief pullback and then start looking again. And don't forget, we've got a new small cap profile coming sometime in the middle of the coming week... maybe Tuesday or Wednesday.