The market bounced late in the session on Thursday on the heels of yet another band-aid attempt on the Greek debt crisis. This was also coupled with an attempt by the government to alleviate some pain at the gas pump by releasing oil from the strategic petroleum reserve. Government intervention aside, it was a logical time for the market to bounce. The S&P 500 was approaching the March low and 200 day moving average after declining for almost two months.
The number of stocks in the S&P 500 trading above the 50-day moving average recently dipped below 20%, which has produced oversold bounces in the past on the S&P 500.
You can clearly see on the charts the market is setting up a trading range on the S&P, and that this is not a trending market. A few things are troubling in the current market environment. The increase in the volatility index has been slow and steady this time around, unlike the March panic low which was a quick washout event. Since volatility hasn't reached panic levels, the market could be signalling that this downtrend should resume once the oversold bounce is over.
The dollar is continuing its trend higher. Momentum is above zero and an ascending triangle pattern is forming.
The dollar also had a good amount of buying pressure after its first pullback, which was similar to what happened during the 2010 Euro crisis. This indicates there is still a bid under the dollar.
If the market were to reverse course and breakout to new highs, it would need to have some sectors establish leadership. Gold was one sector that was showing relative strength, but gapped lower today on the heaviest volume since early May. This could be setting up a failed move to fast move situation, where the failed breakout produces a correction.