Sam Collins

S&P Close to Breakout Level

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What the Markets Are Saying

The head-and-shoulders formation is one of the most reliable signals in the technician's book of tricks -- most claim more than 80% accuracy. And the recently negated one was picture-perfect, conforming to almost every point in the manual -- and perhaps that was the problem.

The pattern was so widely discussed and accepted by virtually every financial commentator and analyst that I'm sure the words "The stock market is designed to confound the most number of people most of the time" are still ringing in the ears of many CNBC and FOX Business followers.

But "what is, is." And that puts our analysis on hold until the current pattern is resolved.

And the current pattern looks like this:

• Wednesday's dramatic advance ploughed through the Dow's and the S&P 500's 20- and 50-day moving averages, as well as the bearish channel drawn from the June high.

• This pop was followed by a run of another 95 points on the S&P on Thursday, which extends the gains close to the significant breakout level of 945 to 950 and the 210-day exponential moving average at 943.

• A strong breakout above this level -- 3% or more -- would more than likely result in a new leg up and targets the 1,200 area as the next major resistance zone.

Unlike the S&P 500, the Nasdaq has broken from a double-top with the prior high on June 11 at 1,880. But despite Thursday's "breakout," the new trend is not confirmed until the advance reaches 3% of the level of the break, which is 1,936.