Fed Talk... Rates To Rise.... Watching S&P 500

By: Jack_Steiman

The stock market has been resilient no doubt. The bulls are buying up moves lower over and over ever since the bull-bear spread got down to minus 10%. In a bear market minus 10% reading isn't all that important. It can and will go much lower than that, but since all we had was a correction when we reached minus 10%, the bulls became active once again. There hadn't been any real distribution volume on that last correction, so that was one way to recognize that the bear had yet to begin. Let's face it, the best way to blast off a new bear market would be to make new highs and get a negative divergence in real time on those horrible-looking, monthly index charts.

We have worked our way back to plus 16% on the bull-bear spread, but that's simply neutral, and not playing in to froth on any level, thus, the green light is still on for the bulls. All of this has allowed the market to hang tough after making a trip down to critical support on the S&P 500 at 2020. After hitting 2022, we have moved quite a bit higher, and are now looking to take out 2075, or major gap resistance on the S&P 500. If we can get above that we can try for new highs above 2134 on the S&P 500. Only time will tell if we get the move, but, thus far, you have to at least like the way the market held and blasted off support. Often this is a good sign for the bulls in the near-term. The energy is just not there for the bears as of yet to get the next leg lower.

All eyes and ears were tuned in to those fed minutes, which came out at 2 p.m. eastern time today with the basic message being that things are on course for a rate hike come December. The market is hurting for a rate hike as it would show some confidence that the economy is at least growing a little bit. The market is no longer interested in zero rates as it represents weakness. Things, or should I say psychology, changes quite rapidly and thus we've gone from a market that wanted only zero rates to a market that wants slowly rising rates. It definitely doesn't want the beginning of a new, rate-hike cycle, but it does want a slow move upward. Fear will turn to confidence if Fed Yellen would only speak about raising rates in December. When she did say that the market said good.

It's not great, but it is good, since she's already so far behind the curve. The banks should do well with this news for a while, one would think. Fed Yellen also made it clear that there is no need to worry about any aggressive cycle of hikes. She knows there is no real strength in this economy, or the global economy for that matter. She'd rather not raise rates at all, but she knows the market wants it, and, thus, she really has no choice. Remember her real job title, which is 401K manager. If she could get away with it she wouldn't raise rates for years to come as she knows there is no real growth. But again, she's so far behind the curve she really has no choice. She seems ready to give in to raise number one of 25 BP's. The market, overall, did so, and should like this as it removes uncertainty as well as doing the right thing.

The market needs a strong close over 2075 to get rocking towards the old breakout level on the S&P 500 at 2134. A close a few points above is not convincing. I like a move of at least half a percent or 2085. One percent is even more convincing, but I'll take a half percent, and feel good about it as it gives room to back test and allows for some overbought unwinding. There are only two numbers that really matter to this market and they are S&P 500 2020, and the above mentioned 2075. A move to 2020 on a closing basis, with a bit of force, would be very bearish for the short- to possibly medium- or even longer-term. The move over 2075 as I mentioned, could lead to a move to the old highs, or even higher than that.

The fight is on. As I've said before, a move to new highs makes the most sense, since that would etch in stone a true negative divergence. Once that occurs, you then wait for the topping stick, and, hopefully, some distribution volume to confirm the top is on for the bull. But we don't need to worry about that now. Our only focus is to recognize what's taking place in the short-term and play it. There's nothing bearish yet, but there's also nothing truly safe, since those monthly index charts are so awful. Day to day with a keen eye on a strong close over 2075, being what the bulls are looking for and what the bears are dreading.

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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