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The Dynamic Trading System generated sell signals on both the

S&P 500

, or SPX, and Nasdaq 100, or NDX, at Thursday's close. Accordingly, traders in our managed accounts have entered bearish positions on both these indices.

The SPX paused yesterday right around the 76.4% retracement of the late-February/early March decline. (That level has become a popular one recently, an opportune way to flush out shorts who have stops near or just beyond the 62% and/or 66% retracement levels.) See the 60-minute S&P futures chart further down for more on the price action.

DTS NYSE Short-Term Oscillator

: This short-term measure of the NYSE's internal buy/sell pressure has generated a sell signal from an extremely overbought condition. (It's only been this overbought five times since 1993.) Sell signals from this overbought a condition are viable, but may require exit strategies that are a bit more aggressive than normal, which is to say that we may have to be quicker taking profits if they come.

DTS NYSE Mid-Term Oscillator

: This mid-term measure of the

NYSE's

internal buy/sell pressure is now extremely overbought. In an uptrending market, an overbought condition can be sustained. However in a "trading" market, an overbought condition will get sold. So, we're about to find out what kind of market this is (trending or trading); our working assumption has been that it would be a trading market at least into mid-April.

NYSE New-High Percent Line

: This five-day moving average of new highs divided by the sum of new highs plus new lows is in an overbought condition. The same analysis applies to this indicator as to the Mid-Term Oscillator mentioned above.

Source: TheAgileTrader.com

The 60-minute June e-mini S&P futures chart below shows price is now just below the Feb. 27 opening gap; that gap exists between 1452 and 1466 -- the futures are now at 1445.25.

Will they close that gap or fail just below it? That's a tough call, but the buyers may be exhausted and need a break before making an assault on it.

The NDX has also paused just below its Feb. 27 breakdown gap. It also seems to be flirting with a minor broken uptrend line.

Source: TheAgileTrader.com

DTS Nasdaq Short-Term Oscillator

: This short-term measure of the

Nasdaq's

internal buy/sell pressure is rolling over from an overbought condition, generating a sell signal.

DTS Nasdaq Mid-Term Oscillator

: This mid-term measure of the Nasdaq's internal buy/sell pressure is now extremely overbought. The same analysis applies to this indicator as to its NYSE counterpart above.

Nasdaq New-High Percent Line

: We're seeing some improvement in Nasdaq leadership, but nothing really impressive. New highs printed at 137 yesterday. That's solid, but still much less impressive than the NYSE, which saw 213 new highs yesterday. This five-day moving average of new highs divided by the sum of new highs plus new lows is in middling territory, neither overbought nor oversold at the moment.

While the stock market has maintained its view that the

Fed's

statement was a positive for stocks, the bond market is giving us more information -- especially the Treasury Inflation-Protected Securities (TIPS) market.

The five-year TIPS bond is currently discounting break-even inflation at 2.47% with a real yield of 2.02%.

Source: TheAgileTrader.com

Since mid-January, expectations for economic growth (red line, real yield) have fallen by about 0.5%, while inflation expectations have risen by about 0.22% to 2.47% (blue line, break-even inflation rate). And the trends have been exacerbated in the "wrong" direction (inflation higher, growth lower) since the FOMC's statement on Wednesday.

Good for the market? Think again.

If the Fed has diminished its tightening bias, it's only because the threat of further economic slowing has increased perhaps even more than that of galloping inflation. But that just means that the Fed is in a

worse

position than it thought it was earlier this year. Its dilemma is that it has only one basic tool (overnight interest rates) to use on

two

problems (maintaining economic growth and minimizing inflation). And if both problems are getting worse (slowing growth and rising inflation), then I'm stumped as to how the market can be jolly over that idea!

Momentum of Sentiment

The VIX now reveals a significantly overbought condition, in line with the SPX's similar condition.

The VIX has essentially filled its Feb. 27 breakaway gap from (yellow highlight). Given that the VIX tends to move inversely to the SPX, this would suggest that its downside agenda is largely completed. Conversely, that suggests the SPX may have completed its upside agenda for the short term.

Both our VIXMO oscillator and the price stochastic are extremely overbought and are now working on generating short-term sell signals that would confirm our DTS sell signals.

The put/call ratio moving averages that we have been watching closely have, in the main, worked off significant portions of their oversold conditions.

Source: TheAgileTrader.com

The equity p/c five-day moving average, index p/c five-day moving average and aggregate p/c five-day moving average have all moved into "normal" ranges (within one standard deviation from the mean). So, the bullish imperative that existed on these indicators has worked itself off. However, the aggregate p/c 20-day moving average, which is a more mid-term indicator, remains at a historically high level.

Consequently, there may be further upside over the next month or so. If so, however, I suspect that that upside will be limited to a creeping, choppy, bullish bias, given the VIX's trip back down into a very low absolute range again.

At the time of publication, Oliensis was short the SPDR Trust and Nasdaq 100 Trust and the Ultra, Rydex and futures markets, although positions may change at any time.

Adam Oliensis is president of Dog Dreams Unlimited, a guaranteed introducing futures brokerage, and editor of the trading service

The Agile Trader

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Oliensis appreciates your feedback;

click here

to send him an email.