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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Breaking Out....Not A Rousing Push Up After The Open.......

Stock-Markets / Stock Markets 2013 May 04, 2013 - 11:01 AM GMT

By: Sy_Harding


The masses thought it couldn't happen. That is, wouldn't happen. How can we make an important breakout when you see all these poor-economic reports? Also, it's normal for a market to double or triple top and then crater back down, isn't it? There was a lot of big money that was against the Jobs Report this morning. Many were thinking the number could actually come in negative. In fact, in front of the report pre-market, the futures were slightly lower, so the bulls weren't exactly displaying enthusiasm. They weren't sure and who could blame them.

The market waited and then the news hit. Hampton Pearson was at his usual spot with a little smile on his face, and you could feel the bears sinking emotionally. They knew they were in trouble. You see, no matter how the market was going to finish, the emotional money was going to run out of their shorts. Had the market finished red, those short into today would have sold at the top, and then felt that horrible feeling one gets in the pit of their stomach when shaken out. The bears covered. The market rose, but didn't go crazy to the upside as most might have anticipated with such an important price breakout over S&P 500 1597.

The move is good but, without a huge run up after the open, things aren't exactly spectacular for the bulls either. You have to wonder why the hesitation on such an important breakout. Part of it is because the short-term sixty-minute charts began printing 70+ RSI's. Some getting as high as the mid-to-upper 70's, thus, the market stalled but didn't collapse. That's important, too, as the bulls did hold some strong gains over 1597. So it wasn't a perfect day, but a good day for the bulls, nonetheless. The bears aren't going to be enjoying the weekend.

There is absolutely no question that the bull market has been predicated almost entirely on the actions that have been taken by Mr. Bernanke, and now, lately, the rest of the world. His flooding of cash to the banks to inspire lending for businesses and interest rates so low folks are basically forced in to the stock market. However, just for fun, you have to start wondering if the market smells something else here. It is possible, I would think, for the economy to actually start improving, and although we're really not seeing that yet, no matter what today's good Jobs Report may say, maybe the market sees improvement coming in ways we just can't understand at this time.

Thus, it's possible many months from now we'll say something like now I get it. I could never have seen this, or that improving such as it has. A real shocker since things seemed so bad, etc. I'm not saying that is going to be the case, but at some point you'd have to think that even the Fed can't keep things up forever and cause breakouts such as we saw today. If the economy was really going to collapse, Fed action or not, the market would start heading lower with some force and we're just not seeing that. So maybe, just maybe, things are actually about to get better. We can hope.

When markets make the breakout it's important that many days go by without the bears being able to seize back the critical level where the breakout took place from. That key market level is S&P 500 1597. All of the indexes have joined in on the breakout, which is good to see, but the S&P 500 1597 is one important level to watch. It's not impossible that, instead of gap and blast higher in the days ahead, we will instead see a classic back test of that 1597 area. If it gets there, from a technical perspective, the market should blast right back up, but we shall what the market has in mind. Never get complacent and think you know exactly what's in store for this game.

Just when something seems one way it can transition to something else. If we close below 1597 in the short term then today has to be looked at as a head fake breakout which would be bearish short term. This breakout should not fail if the move is for real. We must keep a close eye on things, especially since we closed off the highs today. It opens the door to wondering what's really going on. It leaves a seed of doubt. It's all fine but it does leave the seed of doubt. Had we closed on the highs, rushing higher all day, then the seed of doubt would not be there, but that was not the case. So we need to be on guard for all possibilities. Exposure is clearly appropriate. Buying weakness is best. Just be sure you're not buying if we lose 1597, or things could get nasty for any bullish plays you may think you're in.

Have a great weekend.


Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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