Monday’s Breakout in Stocks Was Fair-to-Good, Not Great
We would give Monday’s breakout in stocks a B-. Everything looked pretty good in terms of market breadth and technical indicators. What drops the grade down to a B- is lack of overall volume. With the Fed on tap today at 2:15 p.m. ET, it may be too early to give yesterday’s breakout a final grade. We did very, very little in the way of buying yesterday. Breakouts can fail, so we will observe over the next few days with an open mind.
The CCM Bull Market Sustainability Index (BMSI) closed Monday at 2,234, into bullish range, but at a point where advancing markets have tended to take a rest (see red areas in table below). We would be more inclined to upgrade the current breakout if the BMSI can advance a little further in the next day or so. The longer the S&P 500 can remain above 1,131, the more relevant the breakout becomes.
If a pullback in stocks occurs on strong volume and decidedly negative breadth, it would be another yellow flag (in addition to Monday’s volume). A pullback on tame volume with average market internals would be a good sign. After one day, the breakout so far looks like one that could advance further, but it does not yet look like something that will lead to a rapid and convincing move higher.
As we mentioned in the video on September 14th, we would classify our reaction to yesterday’s move above 1,130 on the S&P 500 as “cautious and skeptical” (see 2:00 of video). We are ready to put some more cash to work in a relatively conservative manner, but we are happy to make no moves if the market cannot (a) remain above 1,131, and (b) show some more conviction in the form of volume. Our breakout grade of B- is indicative of an “ok” breakout; decent, but far from optimum.
