One level of resistance that bullish traders in stocks would like to see violated to the upside resides in the S&P 500 (SPX.X) at 1,202. This is a retracement level at 50% retracement we were monitoring for support back in late June, and recently monitored as resistance on July 10th. Today, we're once again seeing this 1,202 level come into play. With bond YIELDS still in the red due to today's less than bullish unemployment report, equity traders need to be aware that the money being put into stocks today, is probably just a portion of the money that was taken out of stocks in previous weeks.
S&P 500 Index Chart - last five months
I'd expect some commercials to be leaning on the SPX at the 1,200 level right now. With the bullish percent data losing some ground yesterday to the 48.5% level, the internals of the SPX still are showing weakness. Today's pop to the 1,202 level is probably finding some aggressive bears implementing some shorts. At the same time, we're probably getting some longs selling into strength that bought this index back in June at levels that looked to be support. If they didn't like what they saw at the 176 level having bought at 1,202 earlier in the month, today might have been seen as a good opportunity to move to the sidelines until they saw some selling in bonds to provide enough emphasis for an upward move.
I still believe firmly that bond YIELD will play an important role in how things play out from here. This morning I received troubling e-mail from a subscriber that seems to discount the bond market entirely. I would suggest that any subscriber thinking along these lines, reconsider their beliefs in this regard. When comparing what YIELDS did during other historical periods, one should consider what type of economic environment we were in at that time and what part of the market cycle was occurring.
Perhaps there is a bunch of money coming into the US market that isn't showing up in the form of selling of bonds. Perhaps today's unemployment report is indication? Could it be that all these unemployed workers are pumping their severance checks into the stock market? Maybe that's where the cash will be coming from to support higher stock prices. This is wishful thinking for those that discount the importance of the bond market at this point in time.