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Wow! The market's ups and downs are getting more violent and the time frame of the moves is getting more compressed. When I wrote last Monday that the markets looked a little overbought and that it was maybe time for a little pullback (see Time for one step back?), I never expected the severity and speed of the downdraft.

On Wednesday, I had remarked to a friend that things looked a little overdone in Europe. The sense of panic was evident. 17 leading economists publicly warned that Europe was sleepwalking toward disaster. Tim Duy, whom I regarded as relatively level-headed, rhetorically asked if there is even a panic button in Europe. Little did I know Draghi's pledge to do "whatever it takes" to save the euro was imminent. Nor did I expect that we would move from a short-term oversold condition Wednesday on one of my trading models to a near-overbought reading by the close Friday.

Up, up and away?
The bulls were encouraged Friday when the SPX staged an upside breakout past a key level of technical resistance on decent volume. Does this mean that the bull and bear tug of war is over and the bulls have won?

Not just yet. When I reviewed some of my secondary indicators on the weekend, they hadn't quite confirmed the bullish breakout staged by the SPX. Consider, for example, the relative returns of SPY vs. TLT (US long Treasury ETF) as an indicator of the risk-on vs. risk-off trade. As of Friday's close, this relative return ratio remains in a trading range and has not confirmed the bullish equity breakout.

The same non-confirmation can be found in the relative performance of defensive sectors, such as Consumer Staples against the market. As of Friday's close, Consumer Staples remain above a relative support level and has not broken down, which would indicate that the bulls had taken control of the stock market. Similarly, the relative performance of Utilities (not shown) also shows a similar pattern of holding up above relative support.

Moving across the Atlantic, where ECB chief Mario Draghi sparked the risk-on rally, the chart of the Euro STOXX 50 is still struggling to rise above resistance. In addition, while the yields on Spanish and Italian bonds have fallen, they have not fallen sufficiently for me to wave the all-clear signal.

More of the step-forward, step-back shuffle?
I wrote several weeks ago that we remain in a choppy market and I am waiting for some definitive signs of either strength or weakness before I would want to make a directional call (see Waiting for direction). While the bulls won a battle Thursday and Friday, they haven't won a decisive victory yet. To be sure, there are good reasons to be relatively sanguine about the outlook. China seems to be turning around, as evidenced by the better than expected HSBC flash PMI last week; Mario Draghi has taken the risk of Eurogeddon off the table, as least for now; and the American economy appears to be stabilizing, or at least it's not going over a cliff.

Even though I am cautiously optimistic about the stock market, my official vote in the Ticker Sense blogger poll remains neutral. Until I see some signs that the bulls can break through and take control, my base case remains that of a market dancing the step-forward and step-back shuffle, though I may be tactically inclined to either increase or reduce my portfolio beta. Wash, rinse and repeat.

Disclaimer: Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.