What:  We will remain Neutral for now.

Why:  On Friday morning, I mentioned that due to the mini-breakout above 1090ish and all the myriad other studies we'd discussed, we'd most likely see the S&P travel to 1110 at least, and a rally into early June, before it petered out.  That, apparently, was way too optimistic as we've seen nothing but selling pressure since Friday's open.  There have been five other times the futures were down at least -5% the prior month then gapped down the first day of the new month more than -1% (Nov 1987, Jul 2008, Oct 2008, Feb 2009 and Mar 2009).  Four of the five times, the futures closed higher than the open, each by more than +1%.  The failure was March 2009 which lost an additional -1.9% during the day.  Unfortunately for the bulls, that close higher than the open was the only reprieve - the next 1-2 weeks, at least, was horrid in each case with losses of more than -5% in all five instances.  There is some seasonal strength usually evident following Memorial Day, though, which is a mitigating factor.  There have been 7 times the futures gapped down at least -0.25% the day after Memorial Day.  Buying that open and holding for three days resulted in all 7 winners, with an average of +1.6% and an average reward (+2.1%) more than twice the average risk (-0.9%).  So which to believe?  Frankly, I'm not so sure.  I don't at all like that the breakout attempt over 1090 failed so quickly, especially given everything we went over last week.  We should not be seeing so much weakness, so soon.  I'm still willing to believe that we've seen the worst of the selling pressure, at least for the next several weeks, but a close below 1065 on the S&P cash index will raise serious doubts.  I see no real edge in the short-term due to mixed indicators and the conflicting stats noted above.

What:  We will move back to Neutral if the S&P 500 cash index closes below 1065 or trades below 1040 on an intraday basis.

Why:  On April 15th, the Dumb Money pushed up to 75%, and the spread between that and the Smart Money reached to -45%.  In addition, we got a tremendous surge in the number of bearish (for the market) Indicators At Extremes.  That's the kind of development that doesn't necessarily indicate an imminent market peak, but it does almost always mean that any further short-term gains will be erased.  Now that that has happened, and volatility has exploded higher, we have a very unusual situation with the "shock day" on May 6th.  We looked at somewhat similar days on May 7th, and the conclusions were clear - a short-term rally was likely, probably being capped at a 62% retracement of the crash, then a re-test of the panic lows.   We've looked at quite a few intermediate-term bullish studies over the past week, and given Thursday's gap up open of more than +2% from a multi-month low, history suggests we've seen the worst of the selling for the next several weeks at least.  That doesn't mean it won't be volatile, but we should see a trend of generally rising prices.