On Friday we had one those gigantic down days we see every so often on big volume and a horrendous  advance decline line. The type of move off a top that almost always leads to more immediate downside. That is until we moved from the stock market to the fed market where all seems to be well no matter what is taking place in the real world economy. It seemed to matter a little bit at least when the trio of bad reports came out, which included Jobs Report, ISM Manufacturing Report, and Services Report. It mattered even more when there was even the hint of a rate hike coming in September, or at least, very soon. The drop on Friday took us seven points below the breakout level of 2134, but the bears just couldn’t find the ability to keep the market short-term oversold, and the rally was on. We’re back above 2134, and now that this level has been taken back it’s clear the bears still don’t have the fuel or belief to take this market appreciably lower.

It was there for them, but after we hit 2119 at the open, the buying was on and on in a big way. This leads us to look at the market from a different perspective about which levels matter. 2194 is still the August double top, but now that 2134 no longer matters, we search for the key level of support and it’s the trend line at 2100. A move below that on a closing basis would be far more bearish, while a move over 2194 would be extremely bullish on a closing basis as well. When you are playing with a meaningless 5% spread between bull and bear the emotions will only expand. You need to be extremely careful as whipsaw is likely to increase quite a bit. The VIX is now also a bit higher, thus, volatility is back to some degree at least. Be prepared for more emotional swings folks. The bulls and bears continue to play tag. No one is winning short-term, but long-term the bulls are in control above 2100. ONLY when that level goes away on a closing basis should the bulls feel threatened that their run is ending.