Technically, the Santa Claus rally was positive this year, but it stumbled to the finish line.  The last two days, which are the first two trading days of this year, have seen some negative developments taking place.  Most of our technical indicators are now negative, but prices have remained in an uptrend.  Since price is the most important indicator of all, we must respect it, but we can be prepared should it break down as well.  What we mean by "price" is the chart of the S&P 500 Index ($SPX).  It nearly broke down on Wednesday (the first trading day of this year), but managed to rally by the close of trading and remained inside its bullish channel -- a channel that extends all the way back to June.  That low was probed again on Thursday, but again another rally brought $SPX back into the range.  So as long as it keeps closing within this range, the bullish case is intact -- despite other negative indicators.

The equity-only put-call ratios have been on sell signals for a couple of weeks, and they remain there.  The standard ratio appears to be bouncing back and forth but that is due to some extremely heavy dividend arbitrage in MO, BMY, JPM, and PBR in the last couple of weeks.  Dividend arbitrage consists of very heavy call volume (and no put volume); it is merely noise, and doesn't constitute any valid data for a contrarian put-call ratio buy or sell signal.  The weighted ratio clearly remains on a strong sell signal.

Market breadth has been fairly negative too, as sell signals were issued at the end of last week (trading just before year-end was quite bearish)..  Even though breadth closed about unchanged the last two days, that was a disappointment after Wednesday's very strong opening which saw advances race out to a strong lead over declines as the Dow rose more than 100 points -- all before the whole situation reversed dramatically at mid-day.

Finally, the volatility indices ($VIX and $VXO) rose for three straight days (the last 2 days of 2006 and the first of 2007).  Both of these volatility measures dropped back some today, keeping them somewhat neutral.

In summary, it would be bearish if $SPX broke down below its bullish channel.  Most important: if such a breakdown by $SPX does NOT occur, then maintain a bullish stance.