Test the Breakout…

The market is down today. Whoop de do…

Just like in 2011, 2010 and 2009, the equity, commodity and bond markets have rallied in an ever increasing percentage.

From October through April in 2009 the SPX rallied “only” 176 points or 17%. In 2010 the rally was 232 points or 20%. This season the rally has been even bigger and faster, rising 260 points or 24% just through January.

Each time the market has rallied it has been on the back of “green shoots” that the economy is finally doing better, after a less than abysmal holiday season, where two-thirds of the yearly business is done in one-third the time. It all coincides with a heavy dose of fiscal stimulus and the promise of much more to come. And this year there is a quadruple dose through Operation Twist, the huge ECB swap, the Japanese endless pump and now China directly buying stocks.

Sure, there are several sectors and companies doing “well” versus expectations, but that is just a Wall Street game. Plus, never mind that the cash hoard at Apple alone is larger than the entire market capitalization of 90% of the rest of the S&P 500. I’m still scratching my head about how the equivalent of 10% of the entire population of the United States bought an iPhone in just the fourth quarter of 2012.

We can argue if the economy is doing anything close to what the market says it will be doing until we are blue in the face. It really doesn’t matter because markets are strictly trained to rally on the back of stimulus and the Jawboning of more stimulus. It’s taken trillions of dollars to get here, but this is our market–until it isn’t.

As far as the technicals are concerned there is little real selling, just a lack of concerted buying. The charts say that the SPX should pull back and test the 1260-1270 area that will test the latest primary breakout. But there remains significant technical resistance just overhead for the primary market indices. The NDX or Nasdaq 100 have made a marginal range (and decade-long) high but remember that Apple is 16% of the entire index. The overall Nasdaq Composite is making what looks like a perfect double top to the July 2011 highs and there are no glaring negative divergences to give us the high sign that a correction is at hand, but double tops are something to pay attention to. They usually end in a textbook fashion or the index in question makes a marginal new high that gets the technical types excited and leaning the wrong way at exactly the wrong time.

We are certainly as overbought as we were at earlier market peaks over the past three years, but this is a market that lives and dies on the facial ticks of Ben Bernanke. Oh, and BTW, yields on the 10 year Treasury will be 1% by year end…