S&P at Key Junction

As I have shown this chart many times lately for the S&P, I argued and fought for the bulls as the markets found support around the 1000 level a few months ago (trend remained higher) and has since rallied roughly 18%. As you can see from the chart, we are not at a key junction near the previous candle closing levels from the spring. While the wicks are also very visible, you will notice that the markets did not close over the 1200 level on a monthly basis but in fact around the 1185 level (we closed at 1183 on Friday). With the end of October fast approaching, a close over the 1200 level would argue a breakout is now in the cards and the next level of resistance is roughly in the 1300 range (which also happens to be my fair value for the S&P).

So is this move going to happen? Well, that is a very good question young man. The momentum at the moment, via my "market momentum model" has actually rolled over for the first time since early September. Generally speaking that means we are in a correction zone and given the close proximity to the end of October, this would put the overall breakout posture in trouble. At the same time, since this momentum turned down last week, the S&P has only risen higher - basically moving against the rubber band. The only way for this condition to unwind is two ways. First, the market sells off violently as the rubber band shoots backward or the market stalls out and does nothing (very similar to 2006). Given the very close movement between this market and that market in 2006, I think it will be the latter and from November onward, the markets will be very strong through year end.

Supporting this posture is the two components of the trender model. Range momentum is close to breaking out and I think will breakout if the markets successfully close above 1190. A a breakout in the range momentum adds sustainability and support to the move. On the trend momentum side, that has already broken out to new highs. When combining the two, the bulls have the ball and all the control. IN other words, the bears fighting this trend might be on the wrong side of the ledger, even though the economic variables are weak. And that is where the "compelling" bearish story resides; in variables that are not necessarily correlated to PE expansion or dividend yield growth - both key drivers of stocks at the moment.

Overall, my stock model remains bullish - both on a fundamental basis and from a chart perspective. While I have argued for a correction over the past week (fighting it unfortunately in the S&P), these markets are moving higher over the longer term. The continued unwind of the "bubble in bearishness" continues.