Stock Market Breakout Fails...Nothing Bad At All........

By: Jack_Steiman

We spent the morning watching the futures play around with the flat line to up a four handle at the highs. We were well under S&P 500 1850, or the breakout level, but the bulls were very happy to see the market holding up after poor action on Friday. The bears seemed to be gaining some control, but the futures suggested another story. Nothing tremendous, but at least the bulls were preventing a blast down that would create technical damage for them. The market opened a bit higher, but took little time in doing what the bulls were hoping for. A break over 1850. It traded slightly below for roughly an hour, but when it was clear the bears could not bring the market down, the bulls became braver, the bears gave up, and the market broke through 1850. That's where the day actually got interesting.

Normally, when an average breaks critical support or resistance, it runs hard and directionally. That was not the case today as the market broke out, but could only grind up after that, falling well shy of what one would expect from such an important level breakout. The S&P 500 did manage to hold a bit above all day, until the last thirty minutes when the bears came in and took us below 1850 at the close by three points. A failed breakout. It's never good to see this type of failure. What it means from here is unclear, but it's not terrible news. Sometimes an average will breakout and fail, and then simply spend a decent amount of time back in its base. This failure does not mean an imminent break down is about to occur below S&P 500 1800. It certainly could break down, but the move lower today was not impulsive, and, thus, I wouldn't necessarily expect a break below S&P 500 1800. That said, the market could struggle a bit from here. The failure tells us to play lightly. No aggression for now.

Try to keep emotions in check here. It's very easy to get disappointed with today's action. So many were celebrating the breakout, and now most of them are under water a bit on plays they chased up during today's session. Nothing bearish occurred, but if you recognize what's likely you are better equipped to deal with a little pain for the very short-term without getting overly emotional, and, thus, potentially making a bad exit on a play or two. There's no guarantee, and it is always possible that things get ugly, but there was nothing all that bad today. It's a bull market. The market was green. It just failed to take advantage of an early breakout that would have led to something more fun.

Try to remember that we can fall all the way to 1800 on the S&P 500 and absolutely nothing bearish will have taken place. The bears will need to put 1800 in their rear view mirrors to get the short-term to be bearish. If you recognize that the short-term may be choppy, and a bit annoying, if you're long, especially if you're too long because you bought in heavily on the breakout today, then you'll be able to see things more clearly and say yes, this is expected, and maybe hang in there a bit better. Knowledge is power as they say. While it is possible we could just break out tomorrow, that seems unlikely now. Try your best, if we get some selling, to see it for what it is and move on peacefully.

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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