Stock Market Breakout Oh So Close...

By: Jack_Steiman

We can all taste it, can't we?
The market was so interesting today. The day started out with a gap up, then the non-manufacturing report came out with good news, and the market flew higher. We got to 1127 on the S&P 500, but then a very powerful sell program hit, and knocked the Nasdaq from up 17 to slightly red in a matter of moments. It looked bad, but once the market went slightly red, it started to churn. It refused to just quit. That gave the market some real hope.

As the day went along, the bulls began to take back control. With a load of sell supply near 1131, the market was unable to close above 1131, but it closed awfully close to it. Good to see the market consolidating just below the big breakout. It would be far more bearish if the market quit this morning and didn't come back up, but the bulls showed some real strength by rallying back the troops, and taking this puppy higher, near the breakout by days end. A solid day from the perspective of the bulls, who wouldn't give an inch today, when it looked like the bears would take far more than that. A short-term victory, only because there is no breakout, but the bulls will gladly take it.

Now, we look at the internals. The picture painted there is very consistent. On the up days the advance-decline line is strong, and on the down days the advance-decline line is not very bad at all. The majority of stocks hanging strong. Today was no different. Advance-declines were positive by nearly 3 to 1 on NYSE, and 2 to 1 positive on Nasdaq. A red flag would be raised only if this pattern changes on a more consistent basis. For now, the internals remain bullish, and with volume trends solid, add that to the plus side of the ledger. Volume will count significantly if, and when, we finally can clear 1131 on the S&P 500.

There is one major event that really bothers me on a daily basis. The 10-year bond is showing a rapid decline to below 3%. People are so unhappy with the stock market overall that they are willing to take 2.9% over that time period so as to avoid the market. Everyone seems to hate the market, and this is keeping the market from seeing that flood of dollars that would be coming in on the sidelines. The market will need those dollars in time to get it really rocking, or the bulls will run out of ammunition at some point down the road, once the sentiment issues clear up. Keeping an eye on this 10-year bond as it is really worries me for the longer-term. The trend there says this market will get hammered some day, but that's in the moment, and we have time to watch it.

Sentiment is always one of my biggest issues to keep track of when there are extremes. The bull-bear spread came out today showing that the bulls were only creeping higher. No big burst up in the spread, which is very good news for the bulls. 38.9% bulls and 33.3% bears equal a 5.6% spread. This is historically a very low number, and suggests further upside and a break above 1131 on the S&P 500, but, of course, we have to see it first before playing it harder. Until the bull-bear spread gets well in to the teens, if not higher, it's hard to imagine too much sustained downside action in the market unless we get hit by a very powerful group of bad economic reports that show things are really declining rapidly.

Another headache for the market is the refusal we're seeing from the financial stocks. They are set-up better than they have been for a long time, but refuse to make a run up and break out as many other sectors have. The market will need this group of stocks to make things easier on the S&P 500 1131 breakout level. The Financial Select Sector SPDR (XLF) looked ready to breakout, as did the Direxion Daily Financial Bull 3X Shares (FAS), but both lagged badly today, and thus, a no go for now. If we can possibly burst through 1131 on the S&P 500, they'll finally get rocking. The XLF must forcefully clear 15.00 to make the move the bulls can trust.

Tomorrow morning we will be getting retail sales and the jobless claims numbers. These are two big reports, but not as big and Friday morning's jobs report. Three big reports over the next two mornings mean we should have exposure, but nothing too wild, especially from a higher beta perspective. If the numbers come out good, we will make the move above S&P 500 1131. If not, down we go, and then we'll see.

A day at a time here. So far so good.

Remember that I will have extended late day reports on Tuesday and Thursday, and a newsletter on Monday, Wednesday and Friday's.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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