Twice in the last two days, it looked like the bears were finally going to break through. Twice in the last two days, the S&P 500 teetered on the edge. Twice in the last two days, the market came roaring back. And twice in the last two days, the bears went home disappointed.

Frankly, it has got to be frustrating to be a bear these days. For all of the talk of technical divergences, sentiment extremes, narrow leadership, geopolitical issues, social unrest, and secret meetings between Fed officials and Wall Street bankers, the bears have very little to show for their efforts recently.

In fact, although the S&P 500 is in a short-term downtrend and has been below its 5, 10, and 18-day moving averages for six consecutive sessions, the venerable index is down less than 2 percent from its recent high (-1.67 percent to be exact) and still sports a gain of 7 percent on the year.

Looking around, the Dow Jones Industrial Average is off 1.21 percent from its September 19th all-time high. And the technology ladened NASDAQ Composite has fallen a whopping 2.01 percent during what is being touted as a pretty miserable September.

So what gives? Why are the major indices not being taken out behind the woodshed like their smallcap brethren? If everybody knows that the combination of narrowing leadership and technical divergences tends to be present at market tops, why is the S&P still holding up like a champ? Where is the fear? Where is the anxiety? And where is the selling?

In short, it appears that traders have seen this movie before. They've seen this scenario play out over and over and over again in the last few years. And by now, pretty much everyone knows that the hero doesn't die in the end. And everyone also knows that the battle cry to making money in this market is to "just buy the freaking dip!"

Take a look at the chart below. From a technical perspective, that trend channel is a thing of beauty, is it not?

S&P 500 - Daily

The red circles are also an important part of this picture. You see, this is the fourth time in 2014 that stocks have pulled back. And how have traders responded each and every time? Yep, that's right they bought the dip.

As the next chart shows (this one is a weekly chart of the S&P), this strategy is not exactly exclusive to 2014's market. No, the #BTFD strategy has been with us for years now. And while it is interesting to note that the #BTFD opportunities have become shorter, shallower, and more frequent since the end of 2012, the dips just keep being bought.

S&P 500 - Weekly

So... while there are lots of issues in the market, unless/until the S&P 500 can break below that lower channel line - an important line in the sand that currently resides just below 1960 - traders will likely continue to... everybody now... "BUY THE FREAKING DIP!"

The problem is that this type of trading behavior can't last forever. At some point, perhaps soon, something will come along to scare traders out of the #BTFD mentality. Something will become a catalyst. Something will change the game.

So, what's it going to be? Currently traders are fretting about a host of issues including:

• The protests in Hong Kong
• The independence referendum in Catalan
• The sell-off in Brazil
• The asset flight from PIMCO
• The potential for more volatility in October
• The dollar
• Russia not playing nice
• ISIS warnings
• The Technical damage

Could any of these be the catalyst to get the bear party started? Given that yesterday morning's dip was promptly bought, it is hard to argue that any of the issues above would have the juice the bears need at this stage.

So, what is a risk manager to do? Should they just give up worrying, join the crowd and buy the dip? Probably not. However, it will be important to continue to monitor the drivers of the daily action. You just never know what traders will latch onto next!

Turning To This Morning

Weak manufacturing data in China and soft inflation numbers in the Eurozone have triggered more talk of stimulus efforts from the PBoC and ECB. In addition, the announcement that eBay will spin off Paypal has traders focused more on monetary policy and the recent spate of M&A deals this morning than the ongoing unrest in Hong Kong. And with this being the last day of the month/quarter, U.S. stock futures are following Europe's lead in the early going.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: -0.87%
    Hong Kong: -1.28%
    Shanghai: +0.27%
    London: -0.01%
    Germany: +0.58%
    France: +1.21%
    Italy: +1.27%
    Spain: +1.09%

Crude Oil Futures: -$0.11 to $94.46

Gold: -$11.00 at $1207.80

Dollar: lower against the yen, higher vs. euro, and pound.

10-Year Bond Yield: Currently trading at 2.513%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +5.75
    Dow Jones Industrial Average: +50
    NASDAQ Composite: +21.47

Thought For The Day:

“The four most dangerous words in investing are: This time it’s different.” -Sir John Templeton

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of the Geopolitical 'Issues'
      2. The State of Fed/ECB Policy
      3. The Level of Interest Rates
      4. The Outlook for U.S. Economic Growth

The State of the Trend

We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

Short-Term Trend: Neutral
(Chart below is S&P 500 daily over past 1 month)

Intermediate-Term Trend: Moderately Negative
(Chart below is S&P 500 daily over past 6 months)

Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 12 months)

Key Technical Areas:

Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:

• Key Near-Term Support Zone(s) for S&P 500: 1960(ish)
• Key Near-Term Resistance Zone(s): 1980

The State of the Tape

Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...

Trend and Breadth Confirmation Indicator (Short-Term): Negative
Indicator Explained

Price Thrust Indicator: Negative
Indicator Explained

Volume Thrust Indicator: Negative
Indicator Explained

Breadth Thrust Indicator: Neutral
Indicator Explained

Bull/Bear Volume Relationship: Moderately Positive
Indicator Explained

Technical Health of 100 Industry Groups: Neutral
Indicator Explained

The Early Warning Indicators

Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.

• S&P 500 Overbought/Oversold Conditions:
        - Short-Term: Moderately Oversold
        - Intermediate-Term: Moderately Oversold
  
• Market Sentiment: Our primary sentiment model is Positive .

The State of the Market Environment

One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward.

Weekly State of the Market Model Reading: Neutral
Indicator Explained

Looking For Guidance in the Markets?

The Daily Decision: If you want a disciplined approach to managing stock market risk on a daily basis - Check the "Daily Decision" System. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, is up more than 25% in 2013, and the system sports an average compound rate of return of more than 30% per year.

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The IRA/401K Advisor: Stop ignoring your 401K! Our long-term oriented service designed for IRAs and 401Ks strives to keep accounts positioned on the right side of the markets. This is a service you really can't afford not to use.

All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee!

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder and Chief Investment Strategist
StateoftheMarkets.com
President, Heritage Capital Research
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Positions in stocks mentioned: none

For up to the minute updates on the market's driving forces, Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.