The financial sector has been in a very long-term base. It has swayed back and forth, but has never really broken out. Many of those stocks are showing better action, led by Wells Fargo & Company (WFC), Morgan Stanley (MS), and Goldman Sachs Group, Inc. (GS) to name a few. Bank of America Corporation (BAC) also is improving. It seems to me that for the market to truly break out in a big way, it will have to be the heavily-weighted stocks in the financial world of the market. The Dow and S&P 500 would then likely drag the Nasdaq 100 up with it as they have many bear-market stocks in it that used to be leaders. Stocks, such as Amazon.com Inc. (AMZN), Google Inc. (GOOG), and Priceline.com Incorporated (PCLN), to name but a few. For the moment, the market doesn't seem to be interested in those stocks as many haven't had the best earnings, and they simply got overbought by too many over time.
The quieter areas of the market, for now are the financials, seem to be what's on tap, if this market is going to make a huge breakout over 207.20 on the S&P 500. Not a small move up, but a true, forceful breakout. Now, just because they're in a base, doesn't mean they will make the move up and out. We all know how many different headaches the market has to face each and every day from froth to overbought to negative divergences on the long-term weekly-index charts. The Fed has held things up due to rates, but be sure to recognize that there are no guarantees that the financial stocks will actually make the breakout move. The hope is there. The set-ups are there, but there's no way to know if the market will ultimately allow it. We sit and watch and learn as things roll along, but don't play this as if the base has to make the move up and out. It does not at all. It has a real shot, but there are enough problems to prevent that from happening, so wait and watch. The financials, I believe, will be the determiner of what's to come. Who wins out short term? It's still far from clear. We should know very shortly.
The ADP Employment Report was fairly weak today. Of course, in this crazy market, it's just another excuse to say Fed Yellen will have to keep rates lower for a long time. As if we don't know that already, but the market does seem to love it when economic reports are weak, just not too weak. That's what we saw today ahead of Friday's big Jobs Report. The ADP prelude often doesn't live up to what we get from the big Jobs Report. So we can't take much stock in it, but if it does hold up, the number on Friday clearly won't be too hot. That's what the market seems to like best these weird days of the market.
Any excuse to think that things are getting too hot economically is an excuse to sell things off in equities as the bears will get braver thinking the Fed will tighten sooner. It's all a game folks. No reality to anything in the market. It's just a big ball of human emotion selling and buying without most knowing why they're doing whatever it is they're actually doing. I think if the reports got too weak the market wouldn't like it very much, but there's enough inflation being created by the Fed to probably prevent that from happening. So when the report comes out Friday morning, you root against what most should root for, and that's better employment. You want enough, just not too much. Crazy, isn't it!
The bull-bear spread went down slightly to 39.5%. Still an incredibly bad number, but still nothing technically in the market to say it's about to kick in and knock equities down. It should, but the Fed is making sure not yet. We can't stay at these elevated levels forever, but first the bears have to show some life, and that means taking out the 20-day exponential moving average on the S&P 500. That comes in at 2040. There’s work to be done there, for sure. At least we fell 3% on the spread from last week’s reading. I'll take whatever I can get these days. So we continue at overbought just about on every time frame on those key-index charts. We also continue to have bad negative divergences on the weekly-index charts.
All that said, let's see if the financial stocks can break us out yet again. Did I say it's all crazy?