ISM...ADP Jobs Blind Side Stock Market....

Stock-Markets / Stock Markets 2011 Jun 02, 2011 - 03:08 AM GMT

Manufacturing and jobs. The market has been watching these economic indicators and noticing that they seem to be holding up through the efforts of QE 1 and QE 2 from fed Bernanke. It's not that they have been so good. It's just that they have held up fairly well over the past several months. Today the market got blind sided two times. First, the futures fell from flat to roughly 40 on the Dow when the ADP Jobs Report, the precursor to the big report on Friday, came out and showed a dramatic drop in new job creation. Not good at all. Then the market got slammed.

A shock as the ISM Manufacturing Report came out showing things have really hit the skids. Not good at all. A severe drop the market clearly was not ready for. This came thirty minutes in the trading session. The market fell hard on this news. It spent the rest of the day falling gradually with very little in terms of rally attempts by the bulls. They gave up, pretty much allowing a lot of support to just give way, without much of a fight. Surprising for sure. No fight with so many support levels close together.

When markets are stronger you don't get through this type of confluence of support. The bulls will win out every time. Not today. The bulls folded the tent and walked away, although they did hold that final line in the sand at 1315 on the S&P 500. This will be at least the third separate effort by the bears to take it down. However, it has tested it intraday many times more than that. Third time can often be the winner although strong bull markets can make the bears test it more than three times. As many as five or six times, but you have to be more guarded when you are testing for the third time in a very short period of time. Again, we held the key support level at 1315 today, but there was lots of technical damage done with the removal of so many support levels bunched together. If we lose 1315 in the near future, you can expect a strong swing lower. Levels to be discussed later on in this report.. If we go back in time and study the one sector that has led this market down, and has struggled to gain any momentum to the up side, it's the financial stocks which, of course, can't support themselves. Only the good deeds from fed Bernanke has kept that sector up to where it is, weak as it may be. If he pulled the plug on the cash flow to these banks they'd crash under their own weight. They could not survive without assistance.

Possibly a JPMorgan Chase & Co. (JPM) would survive, but I have my doubts about Wells Fargo & Company (WFC), and more than my doubts about Citigroup, Inc. (C) and Bank of America Corporation (BAC). The fallout would be devastating to the economy, thus, he continues to pump away at will. The bottom line for these stocks are they have no backbone. They survive thanks to the grace of a machine spitting out dollars. Not the best place to be putting your hard earned dollars. The Direxion Daily Financial Bull 3X Shares (FAS), or the 3x ETF for the banks, got annihilated today by nearly 10%. No mercy in this area of the market when things go south. The last place people are hiding their dollars are the financial stocks. Proceed with extreme caution in that part of the stock market world.

So what's a fed Governor to do? I'm glad I don't have his job, but if I did, I'd let the system fail and stop throwing good money after bad. With the economy clearly weakening why waste the new dollars any more. However, my gut says he will actually pick up the pace even further with regards to printing cash as he's worried things just aren't moving in the right direction. He's right, they're not. The more he prints the more the more likely things will get crushed somewhere down the road, as long as years down the road, but somewhere out there a price has to be paid for adding debt onto debt ceaselessly. It just doesn't stop. He's so concerned about nothing bad happening on his watch he just doesn't seem to be seeing the bigger picture. You can only try to inflate for so long. If it's just not happening he should let it go, but for the foreseeable future he won't be letting anything go. He'll try harder and harder to inflate. I feel for him, but I can only hope he does the right thing some day.

Let's look at the technical damage caused by today's nasty move down across all the major index charts. Today's candlesticks engulfed all of yesterday's gains and then some. In fact, they engulfed a few days worth of action. Here's the key beyond the engulfing sticks. The Nasdaq and S&P 500 had four areas of key support just underneath price going into today's action. The Nasdaq had the 20-day exponential moving average at 2800. It had the 50-day exponential moving average at 2790. It had two gaps. One at 2796 and one at 2782. No way one would think we could remove all of that in one single trading day. Guess again. We did and did so in a very large way. All taken out with a close at 2769. Incredible action with the Nasdaq down 66 points. The S&P 500 did the same, losing two gaps and both the 20- and 50-day exponential moving averages. It closed right on 1315 (1314.55). 1315 held again, but I guarantee you, the bulls aren't doing a happy dance tonight just because we're still holding 1315 on the S&P 500. If we lose 1315, the next support level is the right shoulder low at 1294. Below that is a small gap near 1270, and then the March lows at 1249.

It's do or die time here. We're a bit oversold but don't expect much upside here. Below 1315 will force things to get ugly fast.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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