This Market Should Melt in Our Mouths, Not in Our Hands: Why I Am Bullish

By Marlin Cobb

When last we spoke via the Opening Print, I was busy tracking a Zweig breadth signal for a possible high probability marker for upward prices. That just missed and we pulled out the Maxwell Smart cliché, “I missed it by just that much.” Since then, the market has been in a kind of fiscal cliff strangle, unable to go up but not willing to go lower, either. That kind of sideways trapped movement tends to mute future upside and downside, even as 2013 and year-end position management and moves are being stealthily placed, a kind of balanced approach.

Those that know me know that I tend to like the side of the bull, at least that is who I cheer for. It is not that I can't short or won't go short, but I do enjoy making money on the upside more than downside. It is my free-market socialism at work, I feel we are all doing just a bit better when the corporate stocks are doing better. So go bulls! I also like my chocolate to melt in my mouth, not in my hands.
So we missed the Zweig, but I remain bullish throughout our prolonged holding pattern and I think the market is getting ready to do a mouth melt here (an upside move for those that can't follow my metaphors), and here is why:

Above is the Zweig index, a 10-day moving average of the NYSE A/D line. We wanted it to break that 61.5 in 10 days after going oversold. It didn't, but we do think there is a high probability it will, given the amount of time off the lows now to see an overbought reading. We have not been overbought on this indicator since the beginning of September, and once a quarter is about right for a Zweig overbought reading. So the timing and the hold here, without a hand melt, is a bullish read for us.

This chart above is the ratio of new highs to new lows. It has also remained very bullish with readings staying above 40. As we are tunneling up a higher price channel, there are no major divergences that would have us concerned that weakness is creeping in. We instead see a kind of pent-up bullish frustration, i.e., this market is already higher than prices would suggest.

Our last chart is the trend chart that I use to keep my longer term thinking in focus. This is the 4-week accumulation of the new highs / new lows chart we showed just above this one. We use a crossing of the 15-day moving average to suggest a trend to the market. I have pointed out the most recent trend changes, and towards the end of November, we switched from our bearish stance to bullish, looking for another run to higher prices.

So both the longer term trend and our shorter signals, like the Zweig and new highs and new lows, are not showing any cracks in the armor yet. For that reason, we have to fly by our instruments here and remain on the side of the bull. Don't look out the cockpit window for any reference, it is foggy and cloudy out there and you will get vertigo not knowing which way is up. Look at your charts and keep your wings leveled and your nose straight, and stock up on the M&M's before they go the way of the Twinkie. Go bulls!

What I will be watching today:

Economic Calendar: (EST)

8:30am Trade Balance: –42.6B –41.6B

10:00am Wholesale Inventories: 0.4% 1.1%

10:00am TIPP Economic Optimism 51.6 48.6

11:30am 4,52 Week bill auction 0.06%, 0.18% (last auction)

13:00am 3 Year note auction 0.392% (Last)

So for me, trade balance, yawn; wholesale inventories interesting; those confidence numbers seem to be market movers so I will watch the reaction at 10 a.m. to the TIPP, but most interested in seeing rates go up during the auctions today. Us bulls want higher rates to start to squeeze some of the sideline money into the market even without fiscal cliff resolution.

My numbers for today:
Interested in looking for shorts should we hit 1426 area and longs at 1411. 1421 is key for the bulls today as that is where we double-topped yesterday, and if we are to continue this slow grind higher, we would expect that to pop with about a 5-point follow-through (hence 1426).

If you are interested in learning more about my work, you can visit my site: http://redliontrader.com. Currently I am absorbed in finding a better way of delivering real-time social network trade-related news and trades to traders using our Argus social search engine, a dynamic market timing & trading centric all-seeing work dog, sniffing out the best that the internet has to offer.

Today's data:

It's 7:15 a.m. and the SPZ is trading 1423.50, up 3.3 handles; crude oil is up 53 cents at 86.09; and the euro is up 47 pips at 1.2986.
Asia ended mostly higher ahead of the Fed move.
European shares were higher in morning trading after a survey showed a sharp improvement in German investor and analyst sentiment.
Today's headline: “Fiscal Cliff Talks Take Positive Turn”
Economic calendar: Today: NFIB small biz optimism index, international trade, wholesale trade, 3-yr note auction, FOMC mtg begins; earnings from Dollar General. WEDNESDAY: Weekly mortgage apps, import/export prices, oil inventories, FOMC mtg announcement, 10-yr note auction, FOMC forecasts, Bernanke press conference, 3M 2012 outlook mtg, OPEC mtg; earnings from Costco. THURSDAY: Jobless claims, PPI, retail sales, business inventories, 30-yr bond auction; earnings from Hovnanian, Pier 1 Imports, Adobe Systems. FRIDAY: CPI, industrial production, Facebook lockup lifts
Today: Globex volume: 1.77mil ESZ and 10.7k SPZ trade
Fair value: S&P +6.5, NASDAQ +13

MrTopStep Closing Print Video: http://www.mrtopstep.com/closing-print-12-7-2012/

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