There has been a lot of speculation lately about whether the 10.04.11 low of the SPX is the low for this downleg, to be followed by a multi-month rally, or just marks a pause before the decline continues.

There's plenty of evidence to support both points of view, but I'll focus on two weekly charts only.

Exhibit "A" makes the case for the bull flag scenario:

While Exhibit "B" argues in favor of the bear case:

The April - October 2011 decline was identical to the October 2007 - March 2008 decline and, if history rhymes, a bigger waterfall decline is expected to follow shortly.

From my point of view, there's nothing yet to suggest that the market has changed its character. The succession of overbought/oversold market internals has produced a series of lower highs and lower lows. I'm using here the SPY as proxy for the SP500, in order to make price gaps visible. SPY will need to climb above 120 for the stair-step decline to be broken:

In addition, if we look carefully at the next two charts, we'll notice that in a strong uptrend, overbought market internals are followed by sideways/up movement:

While in the current market environment, they lead to sharp declines:

Until we see that shift happening again, it would be premature to conclude that a long-term low has been put in place.

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