| Monday, October 12, 2015 False Alarm? The big rally seen over the last two weeks took many in the bear camp by surprise. Just when our furry friends thought stocks were ready to break down and embark on a new leg lower, a 7.1% rally in the S&P 500 sprang up out of nowhere. However, for those following along in their "Crash Playbooks," the action wasn't all that curious. In short, with the market having mirrored past waterfall declines quite nicely, it shouldn't have been terribly surprising to see stocks spring higher after the successful retest of the lows that occurred at the end of September. Especially after traders came to the realization last week that the Fed isn't likely to hike rates prematurely. In addition to the obvious short-covering seen over the past week, the bulls seemed to gain some steam in response to the improvement in the commodity space, more hints that the situation in China appears to be stabilizing, and the thinking that the worries over the Q3 earnings parade may be overdone. So just like that, the S&P finds itself looking like it is ready to break out of the corrective phase and begin a new uptrend. And those seeing the market's glass as at least half-full are arguing that after a 2-month correction, the combination of negative sentiment, the return of a "bad news is good news" environment, and favorable seasonality could very well provide a decent tailwind into the end of the year. So... with resistance overhead, the question of the day is if the bulls will have the mo-mo needed to break out and move back toward the old highs. S&P 500 - Daily One of the key benefits in using a multitude of market indicators is they may be able to guide you in times like these. So, in reviewing our models over the weekend, I found that the bulls just might have some reasons to be optimistic here. Well That Was Quick Other than the recent price action, which produced the best week of the year as well as a "thrust" in price and breadth indicators, exhibit A for the bull camp is the fact that my "desert island" indicator quickly changed its mind about that sell signal it gave at the beginning of last week. After issuing the first warning in nearly 4 years, my favorite long-term model, which is designed to measure the underlying technical health of the S&P's 104 sub-industry groups, has quickly reversed and is now back on a buy signal. While it is fair argue that the last three sell signals have been punk for this indicator, it is worth noting that ALL of the buys have been successful since 1980. And while there is always a first time for everything, I do like 100% odds over long periods of time! Then when you combine the improvement in this indicator with the decent internal action, the favorable seasonality, and the tendency for the stock market to rise the majority of the time, the bottom line is I find it difficult to be overly negative at this time. All Clear? But then again, the two-armed analysts remind us that with algos overdoing just about everything in both directions these days, it is hard to feel too comfortable with market indicators - even those with an 85% accuracy rating over a 35 year period. Taking this fact into account, it is probably a good idea not to rely too much on a single indicator or model. And with a fair amount of weakness still showing up in our models, the "weight of the evidence" suggests that while a year-end rally may indeed be right around the corner, some caution remains warranted. The Pre-Game IndicatorsHere are the Pre-Market indicators we review each morning before the opening bell... Major Foreign Markets: Crude Oil Futures: +$0.14 to $49.77 Gold: +$10.60 at $1165.50 Dollar: higher against the yen, lower vs. euro and pound 10-Year Bond Yield: Currently trading at 2.089% Stock Indices in U.S. (relative to fair value): Thought For The Day:"I think a hero is an ordinary individual who finds strength to persevere & endure in spite of overwhelming obstacles." -Christopher Reeve Wishing you green screens and all the best for a great day,
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