Well ladies and gents, there it is. Stocks have been toying with it for days now (and arguably toying with it for weeks). It finally happened today though... the market broke through a major ceiling, and as a result is now technically in the midst of a breakout. It remains to be seen how long it's going to last, and I'll be the first to say it makes me nervous. We have to take the clues we get at face value though, which means the stocks are back in an uptrend. We'll obviously look at it in detail today. Before we get to our dissection of the market's current condition, however, we do want to take a quick look at last month's retail sales data published this morning. Retail Spending is Actually Quite Firm You might recall when we looked at December's "weak" retail spending back in mid-January we determined it was less spending at the gas pump driving the bulk of that month's 0.9% decline. Retail spending in other areas was healthy, with or without cars. Well, as it turns out, January's comparable 0.8% dip in retail consumption (-0.9%, not counting cars) was for the same reason... weak spending at gas stations, which includes gasoline sales. It's more than a tenth of all non-food retail consumption though, so when it's off by about 25% on a year-over-year basis, it's going to make an impact overall. Since I know how tough it is for you guys to get the truth, the whole truth, and nothing but the truth, our chart below tells the story in its entirety. January's overall non-food retail spending was up 1.7% on a year-over-year basis [it fell from December's total because holiday shopping is over, as usual]. Total spending (non-food) hit a record-breaking $314.1 billion. Auto sales of $90.3 billion is still close to a record-breaking tally of $91.5 billion hit in November. That's not bad for a January, when weather can and did slow things down a bit. Take a look. The point is, the consumer is in a much better spending mood than the headlines alone would suggest. They collectively saved about $10 billion last month that they would have normally spent on gasoline. A big chunk of that DID get redirected to other areas. We can't realistically expect all of those savings to be spent elsewhere though... at least not until the average U.S. consumer is certain that gas is going to remain cheap for a long while. [And just for the record, though we do think it's hit bottom, we still suspect oil prices and therefore gas prices are indeed going to remain suppressed for a long while.] We just wanted to give you the otherwise-obscured good news. And Off She Goes! Well, nobody should be entirely surprised. We've talked about the possibility of a breakout for the past few days, and we detailed what one would look like in Wednesday's newsletter. We were even kind of expecting it, irrational though it may be. Today we got it. For the S&P 500, this means a move above the former ceiling at 2075. There's still a chance the prior peak at 2094 could turn into resistance, but at this point I don't see that as a foregone conclusion. The S&P 500 has been in consolidation mode for about two months. It should - theoretically anyway - get at least a couple weeks worth of movement out of the rest period. The more convincing piece of evidence pointing to a true breakout is the NASDAQ Composite's chart. It punched through its ceiling at 4811 today, and entered what John Monroe over at the Elite Opportunity service called blue-sky territory. It's just a description of a scenario where there are no inherent technical barriers to hold the stock back once the rally picks up steam. Oh, and since we mentioned it in Wednesday's newsletter, the Russell 2000 also (albeit just barely) cleared its big hurdle at 1212 today. We have to assume the bulls knew what they were doing when they pushed small caps past that threshold. Bottom line? It's not the ideal breakout... a little too strong for my tastes. I have the funny feeling at least a few profit-takers are going to respond to today's big step forward by selling into the strength soon. The market would have been better off just taking three or four small, inconspicuous steps to today's levels rather than get there in one, splashy shot. But, as we've said many times before, pacing itself has never been the market's strong suit. That's the long way of saying I can see the bears pushing back from here. The question is, how much? I'd be willing to bet any pushback will drag the indices back under the key lines in the sand we just discussed, but honestly, that doesn't worry me too much - the first part of the hard work has been done. We only need to really assume the breakout effort has flamed out if the NASDAQ falls below 4712 and the S&P 500 moves under 2040. That will give the market room to pull back some from here, regroup, and then make its way back above the ceilings hurdled today. This second wind is likely to establish a longer-lasting rally than today's effort alone could put into motion. It's all just speculation at this point, of course. There's a slim chance stocks could log another solid gain on Friday. Doing so, however, would actually work against the market more than it's presently equipped to handle. Almost needless to say, this has turned back into a day-to-day affair... even for the long-term, buy-and-hold folk. Q4 Earnings and Forward-Looking Valuation I'm willing to bet exactly none of you will be surprised to hear I see the market's current earnings trajectory and valuation as a liability that will sooner than later come back to haunt us. That's not me being a pessimist - that's just me being realistic. Just so you know the latest facts I'm working with though, we've got a quick fourth-quarter earnings report card and valuation update for you. As of February 10th, with about 75% of results in, the S&P 500 is on pace to earn $27.40 for the last quarter of last year. That's a little worse than the $27.64 it was on pace to produce in early February, and well below the initial expectations of $30.51 being batted around at the end of last year. Oh yeah, it's also 3% less than the $28.25 the S&P 500 earned in the final quarter of 2013. Telecom gets the blame for dragging the S&P 500 into an earnings decline for the quarter, thanks to some quirky one-time accounting hits. But, even not factoring telecom's issues into the mix, earnings would have only grown about 1% in Q4, The forward-looking (2015) per-share income projection for the S&P 500 is now $118.79, down from the $130.99 expected at the end of December. It's also less than the $122.74 the pros were looking for as recently as January 21st. Did we mention that figure is also only 3.7% better than the $114.51 the S&P 500 is on pace to earn in 2014? It's a far cry from the double-digit growth forecasts that had investors buzzing less than two months ago. We hate to be the ones to say we told you so about the contracted outlooks, but, we told you so. In any case, it's not the so much the tepid earnings growth outlook that bothers me as it is the market's valuation. Thanks to today's big gain, the S&P 500 is now valued at a trailing P/E of 18.2 and a forward-looking P/E of 17.5. As attractive as today's breakout is, I just don't know how much upside there can really be for the market. It's a conundrum to be sure, but not one without a solution. We've talked around this from time to time, but I don't know if I've ever come out and said it - the Elite Opportunity newsletter rectifies the conflict between long-term investing and short-term trading. If I had to peg one challenge as the overarching reason why traders AND investors struggle, I'd have to it's the trickiness of looking at your long-term holdings in nothing but a long-term light, and looking at your short-term trades in nothing but a short-term light. The two worlds should never meet. Yet, they constantly do meet for most everyone, tripping them up at the most inopportune times. John Monroe and his EO team can help you get the handle you need on the short-term/long-term tug of war, though, and can help you get more out of the market as a result. If you'd like to learn how to navigate the markets short-term and long-term ebb and flow, learn from the best by watching the Elite Opportunity team do it! Sign up for a quarter and see what it's all about. I'm confident you'll be glad you did. Here's how, or just cut and paste this link: https://www.smallcapnetwork.com/pages/SCNEO/v1/