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Excerpt from the Hussman Funds' Weekly Market Comment (5/25/09):

Straight to the chase – our measures of market internals have somewhat unexpectedly broken down in recent sessions, partly as a result of hostile interest rate action, as well as reversals in a number of sensitive measures of "distribution" (largely driven by price-volume behavior) in an environment where overall price-volume behavior was already tepid. Breadth as measured by advances versus declines is still the clear bright spot in the market's action.

Importantly, the market still has the ability to establish a more constructive tone if it can advance past the recent resistance area. On the basis of constructive breadth and the potential that a better-sponsored advance might improve the tone of internals, we do continue to hold 1-2% of assets in the Strategic Growth Fund in call options, but overall, I am most concerned about abrupt downside risk, and apart from that “anti-hedge” in index calls, the Fund remains well hedged against the impact of market fluctuations here.

One of the concerns that seems to be developing here is that the stock market has gone a significant distance on what is now an article of faith (and a largely discounted one) that an economic recovery is close at hand. To some extent, that puts us in a situation where instead of requiring only that the news is “less bad than expected,” the maintenance and extension of recent gains will require actual improvement in economic reports. As continuing unemployment claims, retail sales and other data are suggesting, those improvements may not come as easily as expected.

Source: John Hussman: Market Internals Suggest Heightened Concern