Another lower high or the start of a bullish trend?

The positive market action of the last two days might trick some into thinking that the market is resuming its bullish course that begun in March and ended last month.  Investor exuberance might be tempered by taking into consideration some of the technicals that indicate this rally could be short-lived:

1.  The only major index trading above both its 50 and 200 day (exponential) moving averages is the tech-heavy Nasdaq. 

2. The S&P 500,  the Dow Transports, and the Russell indices are only barely trading above their 50 dmas and are not close to breaking their 200 dmas. 

3. The VIX (volatility index) is trying to poke through major support at 25.  If it can break and stay under that, chances for a bull rally improve.  (See Chart below.)

4. The major indices seem to be making lower highs and lower lows.  (See chart of S&P below.) The previous high needs to be broken convincingly for a bullish rally to occur.

5. Volume is light but that could well be a seasonal effect.

vix-7-15-09

spx-7-15-09

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