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Wake up! Stocks are breaking out

A trader works on the floor of the New York Stock Exchange.
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A trader works on the floor of the New York Stock Exchange.

Breakout! S&P 500, Nasdaq, and S&P Midcap are poised to close at historic highs.

All year, there have been groans from the trading community on the technicals: 1) we're in a trading range! 2) the volume is terrible! 3) there's no volatility!

It's true we have been seeing low volume and low volatility, but we are on the verge of breaking out of a trading range we have been in all year.

Then there are groans on the fundamentals: 1) the valuations are high!, 2) the economic data is not as strong as it should be! 3) earnings are poor!

But I'm not sure that gets you to a change in direction. I'm not sure this alone means we are on the cusp of a lasting bear market.

What about earnings? Here, I am concerned by the prospects of at least two, and possibly three, quarters of flat to down earnings growth, on top of negative revenue growth from the strong dollar.

But can we make a CONVINCING case that earnings are peaking? Right now, we can certainly argue that earnings have stalled, largely due to strength in the dollar and weakness in oil.

But I'm not sure this is the start of some kind of secular decline in earnings.

Two final points: 1) market psychology remains bearish. You don't usually get a major market peak with this kind of psychology, often considered the most hated stock rally of all time. You usually get a lot more exuberance.

2) There is no alternative to stocks. Every trader I talk to says, what will do with our money if we sell stocks? The alternatives are so unpalatable that it makes the bar much higher for the bears. It takes a lot more to convince people.

So, for the moment, I am not willing to call a market top.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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