If you've noticed over the past many weeks and really two to three months, the market hasn't had the ability to break out to new highs. We've seen dramatic, if not historical, measures taken by the ECB with regards to unprecedented levels of free bank cash with a new QE program of over one trillion per year, not to mention that it is open ended. We've seen our Fed, Ms. Yellen, today say rates will stay low. That she has the markets back. Of course, those aren't her exact words, but they sure are implied, and the market knows it. The markets initial reaction, as always, was to try higher. It always tries higher. This time higher didn't hold. More and more measures are being taken globally to prop up markets and their respective economies, but the measures taken are having less of a positive effect.
Let’s face it, if you flood banks with cash but no one takes it, what good is it. Economies simply aren't recovering. It's too hard to get the loans, and they should be, and most folks don't feel comfortable enough to take the risks. We had a horrible durable goods report this week. 3.7% below expectations. That's more than just a normal miss. One can only imagine how bad things would be if Fed Yellan didn't take these actions, which of course, she shouldn't have. Let things heal naturally, but not on their guard anyway. So, bottom line is this, after the Fed spoke today the market fell, and it fell pretty good. Nothing earth shattering, but a drop that was clearly noticeable both in price and for the little effect Ms. Yellen had, even with her words of market wisdom.
During any given earnings season most of the big cap leaders perform fairly well, but even more important than that, even if they don't, they are graced with a pass. No worries, we'll let you go up because we're in a bull, and we're sure you'll get your act together shortly. There's no damage no matter what you're reporting to the street. We're not seeing that any longer. If you do well you are rewarded. That said, if you don't, you get smoked in a big way. No more free passes. No more mercy. Of course, that's the way it should be, but isn't until you reach a point of too many bulls.
Also, when you're looking into the face of some terrible looking weekly- and monthly-index charts. A heavy weight on the market. While no one is truly in control, if more and more stocks fall on their reports, then it'll get harder and harder to imagine a breakout for equities as a whole. The ones that are failing are heavily weighted so it'll be tough. Recognize that Apple Inc. (AAPL), which is very heavily weighted, and was up big on their report, couldn't even keep the NASDAQ green today as the advance-decline line was very poor. Just not enough other heavily weighted stocks to keep it going. This reality is yet another concern for the market.
So yes, we're back below those key 50-day exponential moving averages but to be blunt, it really doesn't matter yet since we're not far enough below to make it a real breakdown. We've had now four attempts to stay below those key 50's. We went right back up and through the past three times. Will this time be the same? Unknown, but the job, as I've said, is getting tougher, especially when you consider today's really bad reading on sentiment with the bull-bear spread now at a very poor for the bulls 36.8%. Only a move on the S&P 500, down to the 200-day exponential moving average at 1966, would things get more interesting for the markets. That would be far enough below that any back test of the 50's can be measured for potential failure.
For now we're still nowhere, but the job is clearly getting tougher for the bulls in terms of sustainable upside. Keep things very light.