On Friday February 10, the market dropped to its worst one day loss so far this year. Apparently, renewed tension from the ongoing Greek bailout drama and a disappointing reading on the U.S. economy were the trigger points for this sell off. But this market needed an excuse to retrench and catch its breath.
According to my market gauge this market did become overbought, top heavy and in danger of a tumble. But by the end of Friday's down draft session, this gauge was back to neutral, and so was the market, neither overbought nor oversold.
Check the Troika charts on this page, and lets see where the market is most likely to go from here. Note that the bull trend BGU and the S&P 500 index SPX both received a bit of a haircut during this sell off, but their 10, 20 and 50 day moving averages never even twitched and remained in their bullish configurations. Same applies to their respective MACD momentum and RSI strength indicators, both of which remain solidly in bullish territory. Confirming the bullish stance of this Troika is its third member, the bear trend index BGZ. Here, the 10, 20 and 50 day moving averages remain in a negative configuration, and that is keeping this bear stuck at the bottom, and the market poised to the upside. This is confirmed by the bear's MACD momentum index and the RSI strength indicator, both of which remain in negative territory.
Check the Baltic Dry index on this page and note that it is a close cousin to the Troika which gauges supply and demand trends in the equity market, while the Baltic does the same by gauging bulk shipments from the commodity market, which of course is closely tied to the health of the global economies. 
Also note on the Baltic chart that last December the 10, 20 and 50 day moving averages were slipping into a bearish configuration which was a sign that something was amiss with the global economies and the commodity market.
Sure enough, by the beginning of January worries about Europe's debt fiascoes and fear that China would slam the breaks on its economy took is toll, and investors of all stripes bolted to the exists, including hedge and index funds.
According to the data out there, the exodus from the commodity market and plenty of the equity side as well was the biggest in twelve years, and during January alone more investment money rushed back to the sidelines and into bonds and Treasury papers than there was during the past two years. No wonder trading volume and investors participation in the January rally remained pretty light.
Not only that, but in January the stock market was supposed to follow the Baltic down, instead of rallying to higher highs. So now the big money on the sidelines is wondering how to make up for this missed opportunity, and therein lies the prospect of a powerful and prolonged bull market. Since the Troika is a forward looking indicator, this could be the reason why the bears remain stuck at the bottom, while the bulls remain set to rally at the top, and why despite Friday's decline, the bull ETFs are still the favorites out there.
Rounding up this bullish outlook is that the Baltic appears to have hit bottom, which could well be the beginning of a new uptrend and the end of the down draft.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
