Today was the day the bears wanted to have to make a statement. They held the bulls at bay late yesterday with a late reversal lower. The bears should have had a very easy time knocking the bulls out today by taking things lower with a big gap down. It didn’t happen. Should have happened, but it didn’t happen. When a market is getting in a better mood, it’s hard to knock it out, even when it appears things are set up that way for the bears. Not only were the bears ready to pounce on the bulls, but they received some very good news for their case pre-market as a major market leader, Deere & Company (DE), warned on their earnings report, not only about the last quarter, but on the year in general. The stock slaughtered, thus, one would think it’s lights out time for the bulls. The futures were down a bit, but not nearly as bad as one would have expected.
The gap down was small and never got going. Beta remained out of the game, and with the bears getting nothing done, the bulls came in a bit and kept the market going their way overall by days end. While we don’t have the breakouts across the board yet, you have to think the S&P 500 wants to test up to the trend line top at 1425. If the Nasdaq clears 3025 with force and the S&P 500 joins in by clearing 1425 with force, the bears are in some very big trouble to say the least. They are locked and loaded, with a move over those levels equaling melt up time as those shorts cover. It’s still very unclear, and it’s nice if the Nasdaq clears 3025, but how nice it would be if all those wedges go away for good. 1425 plus will do the job for the S&P 500.
Sentiment is something to always keep an eye on. If you remember last October, we had a bull-bear spread of nearly 11/%. Yes, 115 more bears than bulls, and this gave the market a very powerful move up for a few months. Once the rally ended due to the sentiment issue equaling out, the market has gone sideways for most of the year. Some spurts up from time to time, but mostly lateral for quite some time. The market isn’t anywhere near the levels of last October, but considering how well the market has held up, the numbers are more market favorable for the bulls as the spread is only at 17% more bulls.
You have to hit 30% or higher before you get the red flag that there are too many bulls in the market. With the global situation as it is, especially regarding unemployment, it’s no wonder folks are still more sour on their lives, and the prospects for good times ahead. It’s exactly that mentality, unfortunately, that keeps the market moving higher as the bear trade gets full with bears covering at an average of only a hair under two days. We’ll watch this unfold over time, but for now, the issue of market sentiment is still on the side of the bulls.
There are places to look to see what the market is thinking about. You look at the past dead spots that caused this problem in the first place, those financials. They have been performing quite well, and thus, the thinking is clear to the average investor. He or she believes that Mr. Bernanke will always be there to protect them, and therefore, buying into them makes a good deal of sense. Also, you want to be sure froth is out performing, and we see that it is as the Nasdaq is clearly closer to the big breakout than the S&P 500 is. There is solid action there as well.
Until we see the financials fall apart, and until we see the risk off trade come into effect, things are fine for the bulls. There’s nothing to get overly excited about but fine for now. We again watch Nasdaq to see if it can blow through 3025, and we wait for the S&P 500 to confirm with a strong move above 1425. Support is at 3000 Nasdaq down to 2960, while the S&P 500 has support at 1400 down to 1380.
Peace,
Jack