Minor Bearish Market Divergence in Place, But Strong Bullish Momentum in Place; October 12, 2009

Overnight the S&P futures barely broke to a new high while the Nasdaq futures did not. Also worth noting, the S&P cash index fell less than a point shy of a new high above 1080 while the Dow cash index made a clean new high. The high risk small cap Russell 2000 index was weaker with the Nasdaqs today suggesting that high risk holdings are being abandoned. This type of behavior occurs at market tops, and seeing as that we're looking for a major market top, it's worth noting this and watching it.

On the flipside though, the market is still very bullish as I can see it. It's rallying in what looks like subdivisions of an impulse rally, suggesting the larger trend is still up, internals are still strong suggestions that buying demand remains solid, this week is options expiration week (actually on Friday) which usually has resulted in a bullish tailwind for the week, and corporate earnings for the 3rd quarter are coming out in the next 3 weeks.

Let's focus on earnings some more. It seems pretty obvious to me that the earnings will come out and just blow the cover off the ball, and will also give great blooming estimates for the future. However this will be on the backs of massive layoffs and downsizing measures which will severely hinder this consumer based economy in the long run. That will be ignored most likely, and the great window-dressing earnings data we're about to see will be reason to surge this market higher.

So despite a very minor bearish market divergence, I see the market on firm footing to push higher in the coming weeks as earnings results come in. It's possible that people will "sell the news", but the bottom line is that earnings will be "outstanding" for the over-exuberant market bulls that do cartwheels on CNBC every day about how we're in a new bull market.

The target for the S&P is the 1100-1120 area. Once we reach that range I'll be on alert for a top again.