But that was not the case. Instead, we got a rally attempt that failed to hold on. I don't need the VIX and I don't need options ratios to tell me that means there are still plenty of folks sitting out there waiting to sell stocks on any rally. Or worse, buy 'em on any dip.

When you get real capitulation, it's because everyone who wants to sell has sold. Once they have sold, it's easy to rally because there are no sellers above. It's as simple as that. But when there are sellers above, we get action like we had on Thursday.

What was most disconcerting about Thursday's action to me was the ISE call/put ratio was quite high at 150%. In a down market, readings that high should be unusual. But that has not been the case in this decline. For example, June 25 saw a reading of 161%. Notice on the chart of the S&P below what the action on June 25 was -- it's the red arrow. You can clearly see there is no wall of worry, but rather a slope of hope still out there.

I know the Investors Intelligence readings and the American Association of Individual Investors readings show the same bearishness as we had at the March lows. And gosh, now CNBC has declared this an official bear market, as has Barron's. Yet the folks who are actually putting money to work might be talking bearishly, but they are acting like bottom-fishers.

It is true that almost every one of the indicators I follow is stretched to excess. If that is the case for my indicators, then you have to figure it's the case for everyone else's as well, and that's the reason everyone is waiting on that elusive rally.

So I will remind you that we are oversold enough to rally and we even had fewer stocks making new lows on Thursday vs. the March lows (a very positive divergence), but I think I'd rather wait for some capitulation, or at least an oversold rally that relieves some of the downside pressure and then comes down again.

In the meantime, several of you asked me to review gold. When we last checked in on gold in late May, I discussed the potential for a head-and-shoulders bottom as long as gold held above $875. When you look at this chart, you'll see that it traded below $875, but keep in mind that we were on a different contract then -- August gold is now the front month -- so that $875 area did indeed hold.

We are now at resistance, or the neckline if you prefer (that's the flatter of the two lines) around $950. As a contrarian, in a rising market I always ask what can go wrong, and in a declining market I ask what can go right, so the first thing I am asking myself right now is why we haven't broken out yet. If the sort of decline we've had in the stock market hasn't done it, then what is it going to take?

Of course perhaps the answer lies in the sentiment discussed above: Folks really aren't scared enough to buy gold yet the way they flew into the yellow metal in March. I'd say a shakeout down to that $910-ish area is possible (in conjunction with an oversold market rally?). If instead we break out through $950, I'd be inclined to think it is accompanied by some panic in the stock market.

The other question to ask is about the dollar/yen and its relationship to the S&P. That relationship has clearly ended. Perhaps I made too much of a fuss over it to the point that everyone was watching it too closely? On the weekly chart below, you can see we crossed the downtrend line and then pulled back and held.

I am not a fan of V bottoms, and that is exactly what we have here. And that top is a few years in length of time (the top is defined as that area between 110 and 120-ish), so if the dollar has in fact stopped going down vs. the yen, then we are more apt to stay in a trading range and attempt to build a base over time; that resistance in the 108-110 area is too formidable for us to breeze right through it.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.