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Stock Market Bifurcation....Boredom....Froth Slaughtered....Sentiment Worsening Again...

Stock-Markets / Stock Markets 2014 May 08, 2014 - 11:53 AM GMT

By: Jack_Steiman


When will the bifurcation end is the big question. The bigger question beyond that is when will the bifurcation cause a massive down move because bifurcation shows an unhealthy environment that usually leads to an entire market breakdown. That said, you see it and adapt. Maybe the bear market, which is occurring currently in froth stocks, will be all there is in terms of the correction. I'm waiting for the S&P 500 to lose its 50-day exponential moving average, but it hasn't yet and until it does the forecast remains dreary for froth and the Nasdaq, but partly sunny still for the S&P 500 and Dow.

There are more and more stocks breaking down in the S&P 500 and Dow, but fewer by far than what we're seeing in the Nasdaq and small cap world. Bifurcated markets lead to two things that aren't healthy for anyone. They lead to boredom, and they lead to over trading due to that boredom. Not a healthy combination for your wallet. The lesson here being that while we wait for something to turn directional throughout the market world, there definitely are places to be avoiding if you need to be in the game, which most people seem to want to be. Play those boring Dow and S&P 500 lower beta, higher dividend, lower P/E stocks. That'll keep you entertained while things sort themselves out. Something will break soon enough, we hope, but for now we can only stay basically most to all cash as the market sorts things out.

It's unfortunate that the bubble is building again with regards to traders and letter writers as the bull-bear spread is now at a very unhealthy 36.1%. Bears also crept down below 20% once again. Anything over 35% is a huge red flag, and with the combination of bad weekly and monthly charts, which include negative divergences, and you throw in sentiment, you have to wonder what holds this market up on the S&P 500 and Dow.

Well, it's not that hard really to understand as Ms. Yellen was grilled all day on Capitol Hill, and she let the world know that once again rates will be low for a very long time to come along with "tools" to help the economy along. A one-two punch to the bears that makes them wonder how they'll ever be able to get the entire market below those key 50-day exponential moving averages. It's the only thing holding the market up. It's a very powerful punch for the bulls and against the bears. Rates force bull markets and this time is no different. The entire bull market we're in is about rates, so the bulls keep fighting at those key 50-day tests which the S&P 500 did reach again this morning. It was gobbled up. So yes, we're frothing at the mouth again, and yes, we have technical headaches, but yes, we are in a low-rate world that's holding the market up for now.

The bears had their chance today and let it slip away yet again. The chop continues unabated. The longer we chop the worse sentiment seems to get due to the fact that most are calling for a large correction that doesn't materialize, thus, more and more are thinking of the boy who cried wolf. You keep telling us it's going to crash out, but it doesn't so why not keep buying weakness. Understandable. Still a horrific environment for trading, but bulls are coming in on all S&P 500 and Dow 50-day test tests. The onus remains with the bears to crush the S&P 500 and Dow through their 50-day moving averages, and until they do accomplish this, the bulls will continue to buy weakness.

Same old folks. No direction. Just chop for now. Sorry. It is what it is. We need to see 1859 go on the S&P 500, with force and then the tide has turned bearish. Not until that happens, no matter how chopped up things continue to be.



Jack Steiman is author of ( ). Former columnist for, 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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© 2014

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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