Apparently, I’m not the only technician who thinks this market stinks to high heaven. Here’s a corroborating technical picture from Walter Murphy at Merrill Lynch:

On Friday [November 18] the S&P 500 closed at a new 2002-2005 bull market closing high. Therein lies the rub. A solid majority of our technical measures, including the most important indicators, did not confirm those highs. Breadth, volume, and the number of new highs are significantly below their own prior peaks. (For example, only seven of the 100 groups that we examined are at new highs of their own and only another 11 are within 2% of a new high. By contrast, 42 groups are at least 10% below their prior bull market highs.)

Since all of the prior recovery highs were confirmed by these indicators, this divergence is a potentially significant change in the market’s character. As long as these divergences continue to exist, we will be alert to the possibility that any coming rally high could also bring the 2002-2005 bull market to an end. With that in mind – and in addition to the aforementioned divergences – our favorite near term momentum indicator is weak and the 10-day CBOE put/call ratio is at its most overbought reading of the year. Thus, the October-November rally is likely within days (if not hours) of a downside reversal. Beyond current levels, resistance is indicated at 1257-1260. First support remains at 1224-1226.

Last week, medium term momentum continued its recent improvement even as short term conditions are overbought and deteriorating. The index likely needs to correct its near term excesses with the idea that the next short term low will also have positive intermediate implications.