The Market Reaches A Fork In The Road

It looks like the time has finally arrived to see if the optimism that has been flying around this last week is for real. Well, let's see, Brexit is no longer a concern and, for the most part, those losses have been made back. What about China's slowdown? We haven't heard much about that recently. Recession? After the job numbers that we got on Friday, forget about it! At a whopping 287,000 nonfarm payroll report for the month of June you can't argue about those numbers especially when consensus was around 180,000. So, let's just pretend for a moment that May nonfarm payroll numbers were not only 30,000. Oh sorry, I forgot the May numbers were revised down on Friday's job report to only 11,000.

Even with all the rest of the good news we still have some divergences or differing opinions on the health of the US Economy and the Stock Market. Treasury Yields are hitting new lows as bonds and defensive stocks continue to climb. Can this be happening, the yin and the yang working at the same time? Well, it is happening but, the reality is it can't be both. That is not the way economics ultimately work. When is the last time you watched a football game where both the offense and the defense of either team played at the same time? What would happen next? One of those guys in the striped shirts would blow his whistle and say that we have a penalty. Too many men on the field! The coach and the players can argue and disagree all they want but the team is going to be penalized. Likewise, shortly either the defensive players in the markets: bonds, gold, utilities, food and telecommunications or the offensive players in the market i.e. growth stocks, small caps, S&P 500 Index and Dow Jones 30 will have to leave the field. Frankly, I could care less who ultimately wins the field, I am just tired of the sideways action in the market that we have been dealing with now for about a year and a half.

From a technical perspective we are again at the top of that sideways trading range. The S&P 500 closed at 2129 on Friday. We are currently just below the resistance level on the S&P 500 Index, which is 2132-2135. Will we break out above this level? I can resolutely say yes! What I don't know is when. Ah...you thought I was going to make a prediction like so many other pundits in the media do every day. We don't even know for sure what tomorrow's weather will be. Predictions are for those who believe in purple elephants and that they have the capability to know the unknowable.

There are two types of technical analysis out there. There is predictive technical analysis, which I view as "illusion intelligence". Then you have reactive technical analysis, which I practice. What does it say about the market? This type of analysis of the market lets the market prove itself first. Currently, that would begin with a break above the resistance level that has continued to haunt the bulls. What happens once we break that resistance? We must establish that level as new support with confirmed higher volume and time, let's say, maybe a couple of good weeks above the breakout. If we can't break out above the resistance price this week, the odds would favor that the bears will try to get it done downtown again.