S&P 500 Back Testing...Retail Crushed....

Stock-Markets / Stock Markets 2016 May 12, 2016 - 12:32 PM GMT

The market can confuse the best of them. No one could have seen today coming after we broke out yesterday on the S&P 500 with its move above the 20-day exponential moving average at 2069. It had traded between the 20- and 50-day exponential moving averages for a few days, but then suddenly made the move up, although there didn't seem to be a good reason to do so. Since earnings are poor along with a plethora of other problems it made little sense to make the move, although the trend is clearly higher. That said, the move was made and it was made with some force as we closed at 2084, nearly one percent above.

Today should have been a follow-through day for the bulls as it would put some distance away from 2069. Not to be as the market gapped down and ran lower slowly but surely as the day moved along. A head fake breakout? Possibly, but we won't know for sure for at least another full trading day. We'll see who takes control from here. The back and forth is driving traders nuts as we're now seeing large amounts of dollars being pulled out by retail folks from their funds.

Week after week we're seeing this, and it's because the market goes nowhere with one head fake after another. Folks surrender after a while. They don't feel secure in their holdings. Really, who can blame them in this whipsaw nonsense held up by low rates and nothing else. With so many negatives out there the market is having a hard time breaking out above the old high on the S&P 500 at 2134. It can still occur, but the struggle continues. A battle now as at least the bears are fighting some. Not much but some. They surely did good work today with keeping things more uncertain. So with the close near 2069 things are far more confusing, but still overall bullish. The onus is, and will be, on the bears to change in a big way the overall prevailing trend, which is up. A struggle but up. Up on the Dow and S&P 500 that is. The Nasdaq continues to lag. A strange market for sure with today's action making things even more unclear for everyone. Welcome to the fed market. Not much fun is it!

I've talked about it, but it's very important to go over this again so you recognize the type of market we're in the risks. A healthy, full-fledged bull market is led by froth. Nothing but pure froth. Junk if you will. Risk is all anyone wants. They want to buy stocks that are selling nowhere near what they should be. Overvalued garbage stocks is what they want, because they know the emotion, the lure of froth is just too tempting and big money knows retail will chase, chase, and chase some more. When super-high P/E, or, better yet, no P/E stocks are rocking, we know all is right in Disneyland. The problem now is we're seeing more truth come out. Big money wants low P/E, low beta, and higher dividend safety stocks to lead the way for them. The retail buyer isn't getting the support they usually get from the big money folks who will buy junk when things are rocking. They are getting frustrated, and, thus, over time they stop buying junk and simply walk away.

Big money then continues to buy only safety plays. An unhealthy bull. We see it as the Nasdaq is down 5% for the year with the S&P 500 up a drop over 1%. Too large a bifurcated market to call it truly healthy. Maybe it's just rotating for a while and we'll see the Nasdaq lead again, but today, and the past many months, shows why the market goes nowhere. No real thirst for risk. So keep in mind where we are in this bull. Not what we truly want to see, thus, keep it lighter than normal. Nothing bearish yet, but red flags abound. We could still break out, but red flags are around for now. The fed market may win out in the end no matter where we are right now, but just make sure you don't get complacent. Some scratch in the game is fine, but nothing too aggressive makes the most sense to me. Do what feels right to you, of course.

The S&P 500 and Nasdaq saw a lot of carnage today in the retail sector after a warning from The Gap, Inc. (GPS) the other day. Amazing moves lower in the retail sector for stocks such a CVS Health Corporation (CVS), Dollar General Corporation (DG), Dollar Tree, Inc. (DLTR), Tractor Supply Company (TSCO), Macy's, Inc. (M), Nordstrom Inc. (JWN), Lululemon Athletica Inc. (LULU), Deckers Outdoor Corp. (DECK), Dick's Sporting Goods Inc. (DKS), Under Armour, Inc. (UA), Restoration Hardware Holdings, Inc. (RH), Williams-Sonoma Inc. (WSM) and Wal-Mart Stores Inc. (WMT) to name just a few. Amazing, the rotation that exists in this market to hold things up.

The carnage was huge, yet the selling wasn't all that intense, although we are testing the 20's and gap at 2069 and 2065 respectively on the S&P 500. This market is very hard to wrap my head around as it is trading in a fashion that makes little-to-no sense. It can't break down with all the bad news out there, yet it can't quite explode out either. Low rates are keeping the bulls in the game, and there's no way to know at this point in time if that game is coming to an end or whether it will keep driving the markets higher. Without low rates it is my belief that the S&P 500, at a minimum, would be trading many hundreds of points lower, thus, I think risk is very high. That said, there is still nothing bearish taking place, but like I said earlier, don't get complacent.

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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