Bullish exhaustion

Mid-week market update: You can tell a lot about the tone of the tape by how it reacts to news. There is growing evidence that the stock market is becoming immune to good news, which is a signal of bullish exhaustion. In all likelihood, the near-term path of least resistance for stock prices is down.

The results from Q2 Earnings Season has been stellar. Experienced investors know that corporate management is plays the "beat the earnings" game well. According to FactSet, the average 5-year EPS beat rate is 68%. On the other hand, it's harder to play accounting game with sales, as the average 5-year sales beat rate is only 53%. This quarter, sales beat rates are off the charts when compared to their historical experience.

FactSet's update of earnings from last Friday shows that forward EPS is being revised upwards as well. That should be good news for stock prices.

Instead, the SPX has been mired in a narrow trading range and it has been unable to stage an upside breakout to new highs.

The lack of a bullish impulse in response to positive news is a warning for the bulls.

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