A chart was shown today between gap earnings and the movement of the S&P 500 500. The last time the gap was this disconnected was in 2007, the year before the big market crash. Will history repeat itself? Hard to say back in 2007/2009 we didn't have this type of fed protection against any sustainable market downside action. The fed is making sure things stay positive for the markets, so as to keep the economy moving upward, but it is interesting to note how badly the disconnect has gotten. 2007 disconnect is the answer so let's hope that it doesn't repeat itself for 2017. When you see this type of disconnect, it's also a warning about the human emotion of froth and mania. The bulls are starting to ramp up in a very big way, and we're seeing that in the bull/bears spread, which is now back over 30% (31.1%) for the first time in a very, very long time.

We're seeing the numbers accelerate as time marches on. The bears who were sure things would collapse are now moving in to the bullish camp as are those who were agnostic. They figure why miss out on this market if all it wants to do is move north. Slowly, but very gradually, we're seeing the mentality of things can never go lower. That is true for the short term, no doubt, but it's not great to see the process move towards that fearless level that often calls tops not too far down the road. There's still room for more froth so don't fret bulls, but it is a warning for the future. The bears are giving up on a daily basis, and that's not what you want if you love bull markets forever. We need the bears to hang tough. They're not so we'll likely be adding to that bull/bear spread by the end of this week. If the market hangs tough, we'll likely see readings in the mid 30's by week's end. We get those new readings next Wednesday for action that closes this Friday. The red flag is up. The get-out-of-the-water flag is not. We're working our way up there step by step.

The market is doing what bulls markets always do. It takes bad news and spins in to a lateral move, while waiting for good news to propel it higher. We see bad earnings do absolutely nothing to the down side. The market takes out an individual stock, maybe, but not the market. Even most stocks get graced, but not all of them. It depends on your P/E as exampled by Netflix, Inc. (NFLX) yesterday. Too high P/E to get away with their report. If you have a low P/E, such as International Business Machines Corporation (IBM), you can get away with yet another quarter of declining earnings. They're market is looking for any excuse each and every day to travel upward and protect that S&P 500 2134 breakout. The bulls are doing everything in their power to hold that line, and with the bears stepping away, it's no surprise they're doing the job with little trouble. What the market is saying is it wants higher over time with the usual pullbacks along the way from time to time. Never argue with a market when it comes to price, but be aware that the disconnect is widening almost daily. The higher we go the higher the disconnect.

Just something to keep in the back of your mind.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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