We've mentioned this before, but we can't say it too often - we welcome all your questions and feedback, good, bad or otherwise. We really do read all of your e-mails to us, respond to them when merited, and if it's a response all our readers can benefit from, we'll respond to feedback here in the newsletter. We got one such note last night (in response to Thursday's newsletter). KA writes: "Excuse me but you have been negative since 1900 and still are even though all the resistance levels you were taking about are broken. And the only thing you can say is that you don't like it?! You don't have much credibility left." Thanks for the message, KA. You know, yeah, most of the key resistance lines we've talked about lately have been broken, though there's one - the most important one - that has yet to be broken as decisively as we'd like. You've prodded an important discussion all the same though, not just about our analysis, but how we think and write. It's also a perfect segue into today's market analysis. There's no denying there's been a broad bearish tone to most of the newsletter commentary in recent weeks, but we've tried to make it pretty clear this is a bigger-picture, longer-term, valuation-based worry that may or may not matter in the near-term. We don't have time or room every day to offer a long-term outlook that's separate from our short-term outlook. But, for regular readers who look at our commentary, oh, at least three to four times of the five times we publish every week, it should be fairly clear we realize the short-term trend can defy the long-term trend from time to time. [And if it wasn't clear, what you just read should have clarified it. :)] That being said, yes, I recall us being cautiously bearish back in early August when stocks were breaking down and the S&P 500 hit a term low of 1905. We've certainly not been banging the bearish drum the whole time since then though. This is what we wrote back in the August 18th newsletter when the S&P 500 closed at 1971: "Both the market indices we care the most about right now made it over their humps. We have to take it at face value, and even though we don't see a lot of upside in the cards on the heels of the move (as we described above and will further explain below), it is what it is....As for the S&P 500, it punched through a major ceiling too. The mess of resistance around 1955? The S&P moved beyond it today after stalling there on Friday. There's not much else left to get in the way until we get to the upper Bollinger band line at 2000....As long as the 1955 levels holds as a floor for the S&P 500 though, we'll have to give the benefit of the doubt to the bulls." We made this point on August 20th when the S&P 500 closed at 1986. "As much as we feel stocks are overvalued here, and despite a couple of red flags that started waving today (never even mind the fact September is usually a tough month for the market), we don't want to over-react to any weakness within the next few days. Stocks have been rallying pretty well for the past two weeks, and they deserve a break. If they happen to take one here, we can't assume the worst. The indices will need to slide back under their 20-day and 50-day moving average lines before we can say with any confidence the meltdown is underway again. Until then, the S&P 500 is still in the hunt for a break above 2000." [Editor's note: The S&P 500 peaked around 2010 a few days later.] Point being, we were actually bullish for a pretty good chunk of the time stocks were rallying. Most of any bearish thoughts we shared around that time were to explain the rally at the time wasn't apt to last very long ... which it didn't. We really didn't get bearish (short-term and long-term) again until late August and early September when the S&P 500 started to waffle between 2000 and 2010 and the breadth and depth charts started to turn bearish. And, even then it was a conditional bearishness that hinged on a break under big floors around 1990 and 1980. The bulls didn't give the bears a chance to do their thing though, allowing the technical breakout to materialize yesterday. That being said... Friday's complete lack of follow-through on Thursday's technical breakout from the S&P wasn't a surprise, which is why we said in Thursday's newsletter we didn't like being technically bullish. We're going to stand by the opinion, and not like the fact that the S&P 500 entered into technical breakout territory. At a different time and in a different place and in a different context, Thursday's hint would have been an all-out bullish signal. On September 18th, 2014, though - in the shadow of a fairly big long-term rally against a backdrop of a marketwide P/E nearing 18.0 - Thursday's breakout still isn't the kind we can afford to blindly trust. Friday's tepidness validates the worry. While the technical breakout from Thursday is still intact, I'm still not personally convinced it's going to go anywhere. The NASDAQ suspiciously rolled over when it bumped into an established ceiling around 4610 today, underscoring the doubt, and once again the S&P 500 fizzled back to where it started. On that note... Take a look at the NASDAQ Composite chart below. It's pretty clear there's a ceiling in the way at the prior peak of 4610, but it's also interesting the VXN has stopped its downtrend and is toying with the notion of an upward thrust... which would be bearish for the market. On the other hand, the NASDAQ seems to have found support at the 20-day moving average line. If the bears are going to do any major damage, they'll have to do that minor damage first. As for the S&P 500, it basically closed even with Thursday's close, ending the session at 2010.40. That's agonizingly in-line with the bigger-picture make-or-break level for the S&P 500. It's almost like the market's trying to yank our chain. Today was a doji bar after something of a rally though, which implies it's a pivot point. The slight brush of new high territory also suggests a pivot could be being formed. It would be just like the market to zig when it looks like it's supposed to zag. We also saw the breadth and depth charts we've been monitoring slip into bearish trends as of this week. Remember, the market's breadth and depth generally turn for the worst before the market indices do. Honestly, my best advice right now is to continue doing nothing except waiting for better clarity and a more trade-worthy move. We'll know it when we see it, and today wasn't it. An actual breakout would show us some discernible conviction. I will say once again, between the low VXN and VIX, the lethargic bullish effort, the fact that stocks are overvalued overall, and how little it would take to pull the rug out from underneath the market, I feel the market's too vulnerable to a pullback to get into new long trades now. That can change without the market going through a correction. It's just not likely to do so. It's all about weighing the odds, and determining what the market is capable of given this particular scenario. Now, there's reason (aside from leading into today's analysis) I thought it would be good to respond to KA's feedback here in the public forum of this newsletter... several reasons, actually. One of those reasons is, it's a good excuse to explicitly say we know we tend to make the bullish and the bearish argument in each edition of the newsletter. We also talk about the long-term and the short-term every day. Sorry if it can be confusing, but it's by design. Our goal is to teach as much as it is to inform, and we all learn about handicapping the market much better when we have a complete understanding of all the potential risks and rewards, and what could go right or wrong with any of our analysis. That being said, another reason we wanted to have this discussion with you today is to point out how we're willing to make specific calls when the risk/reward ratio of doing so makes sense. There was enough reward and minimal risk a month ago, which is why there was no ambiguity about our proverbial bottom lines (cited above) from August 18th and August 20th, which leads us to a third point... ... there's a time to bullish, a time to be bearish, and a time to be neither (like we are now). This may be the most important tip you get all week. Most traders are pretty willing to be bearish or bullish, but being neutral seems to be tough to do even if it's the right thing to do. And lately, it's been the right thing to do. Case in point: The period between August 25th and, well, through today, the market has moved a whole whoppin' 0.5%. This was a period during which the best thing to do was nothing, which is why we've spent so much time lately talking about the market's horizontal ceilings and floors and how they need to be broken before bothering with new trades. Take, for example, this snippet from Wednesday's newsletter: "... it's not like any of the indices are below their key technical floors, so the bearish technical argument at this time isn't really any better than the bullish one....We could re-enter a confirmed bullish move tomorrow with the S&P 500's break above 2010, although it would probably take two or more days to enter breakdown territory." You could have gotten bullish while the S&P 500 was stuck inside the trading range, but capturing a mere 0.5% move will barely even pay for commissions, and that assumes you got some very advantageous fills. It's just not worth it. The bottom line is, we pick and choose our battles, and we're not going to enter a battle if there's not enough reward or too much risk on the table... as has been the case for a while. We've been lamenting bearishly for a few weeks, but that's more due to the overhang and valuation than it is a developing meltdown. We've been pretty clear about the market not breaking down past the technical point of no return. For the S&P 500, the make-or-break level is still 1980. Conversely, if and when the S&P 500 can make a clean break above 2010 and the NASDAQ can make a clean break above 4610, we're ready and willing to be full-on bullish. Yesterday and today wasn't a clean break though. Anything in between, and there's nothing the market's doing that really matters. And even with yesterday's and today's temporary pop beyond 2010 for the S&P 500, the market still obviously struggling and stuck in a rut. That's why we didn't like it then, and that's why we still don't like it now. Stocks could still just as easily break down here. We just have to call 'em like we see 'em, even if that call is a non-call. With all of this being said, if what you're wanting/needing is explicit market-based swing trades, that's more of a job for these guys. That's it for today, and for the week. Everyone have a great weekend. We'll get the party started again on Monday, most likely with an exit of one of our open positions, and probably a new trade.