Believe Price, Respect Condition

Price broke out. The conditions still need to catch up.

Oct 07, 2026

∙ Paid

The market finally did it.

The S&P 500 joined the Nasdaq 100 at a new closing high Tuesday.

I’ve spent a lot of time lately talking about weak breadth, stubborn Treasury yields, soft credit and a market increasingly dependent on a narrow group of leaders.

All of those things still matter.

But so does this:

Price broke out anyway.

There is a lesson in that.

A warning is useful. A condition is useful. Neither becomes a signal until price confirms it.

For now, price is confirming higher.

My job isn’t to argue with that. It is to figure out what would make the breakout stronger, what could derail it and where the next opportunities may be developing.

Believe What You See

“Who are you going to trust? Me, or your lying eyes?” - Richard Pryor

Yesterday the S&P 500 closed at 7,818.93, setting a new record closing high.

The Nasdaq 100 closed at another record, 31,224.47.

Those are facts.

So are these:

The Russell 2000 fell Tuesday.
Nasdaq new lows continue to outnumber new highs.
The 10-year Treasury remains near 5.27%.
Brent crude is still hovering around $100.
Credit has improved, but has not fully confirmed the equity breakout.

This is why I keep returning to one simple idea:

A condition is not a signal.

Weak breadth is a condition. High rates are a condition. Soft credit is a condition.

A confirmed breakdown in price would be a signal.

We don’t have that.

At least not yet.

Instead, we have new highs.

That doesn’t mean the warnings should be ignored. It means we respect the breakout while keeping the exit door in sight.

Unknown source for meme spotted on X using my favorite movie

What I’m Watching

The most important question has changed.

It was:

Can the market break out despite 5%+ yields and weak breadth?

It did.

Now it becomes:

Can the breakout broaden before leadership starts to weaken?

That is a much better problem to have.

Here are the four things I’m watching.

Shocker: the first is price action.

1) Can the S&P 500 hold the breakout?

The first test is simple:

Hold above 7,800.

Then I want to see strong and sustained follow-through.

Former resistance should begin acting like support.

If we quickly lose 7,800 and cannot reclaim it, Tuesday’s breakout starts looking much more like a bull trap.

If we hold it and build above it, the breakout deserves more respect.

2) The 10-year needs to stop going higher

I don’t need yields to collapse.

I would happily settle for boring.

The 10-year around 5.27% is already a significant hurdle for valuations, housing, smaller companies and anything dependent on inexpensive financing.

The market has proven it can live with high yields.

I’m less convinced it can comfortably live with rapidly rising yields.

That distinction matters.

3) Small and midcaps need to participate

The S&P 500 Equal-Weight (RSP) and Russell 1000 Equal-Weight (EQAL) have both improved recently, but small caps remain inconsistent.

That is still one of the clearest contradictions in this market.

If yields have truly stopped rising, we should eventually see that reflected in the areas that have been hurt most by them.

Small caps would benefit enormously from stable or lower rates.

I don’t want to anticipate that rotation.

I want to see it.

4) Credit needs to confirm

HYG has bounced over the past few sessions.

Good.

Now I want to see that improvement continue.

I’m also watching high-yield spreads. If stocks are breaking to new highs while credit spreads remain contained or improve, the breakout becomes more convincing.

If spreads begin widening again while HYG weakens, I pay more attention.

The equity market does not need credit to lead.

But I would feel much better about the breakout if credit stopped arguing with it.