ISM...Jobs...Economy Spiraling Down... Stock Market Simply Correcting....
Stock-Markets / Stock Markets 2011 Jun 04, 2011 - 11:45 AM GMTBy: Jack_Steiman
There is a lot of bad news out there folks. It wasn't too long ago that we saw good economic reports coming in with regards to expansion. The market was responding with a big move up courtesy of fed Bernanke. The machine turning all day long allowing for massive liquidity to be flooded into the system. This is the reason the market had been doing so well without question. No arguments on this front. Liquidity equals higher stock markets. Just the way it is. Whether it's real or not is not the question here. What matters is what takes place in the market. The market loved the massive amounts of liquidity being thrown around by our fearless fed leader. Now the news is changing despite the influx of massive quantities of cash.
The news coming out has suddenly reversed from positive to, not only negative, but very negative. The ISM, or manufacturing report, was terrible on Wednesday, the same day bad news came out on the ADP jobs report, which is precursor to the big jobs report, that came out today. The market was down some on Wednesday on the ADP report, but really took it on the chin thirty minutes into the trading session when that ISM report came out. It showed a 60 reading the prior month. Anything over 50 shows expansion. The report was expecting things to cool off to 57, but when a 53 number came in, it really took the market by surprise.
The sellers came in hard and fast. When the day was over we saw the Nasdaq down 66 points and the Dow 279. The S&P 500 nearly 31. The damage, technically, was huge as we took out two gaps and two important exponential moving averages in that one day. Unheard of, really. Selling continued on the rest of the week. A strong down week of around 3% across the board. The Nasdaq well off its top at 2887 and the S&P 500 also well off its top at 1370. The correction is on. Good to see. It's what the market needs. More bad news would be great for this market bigger picture.
There are two major headaches in my opinion that is causing this pullback off the top. First, without question, is the nasty negative divergences that exist on those daily index charts. It's all over the place on regular individual stock charts as well, but the index charts are the key. They are slowly being worked off but the oscillators are still quite high. The other factor to me is still the sentiment issue. I know the numbers have come down to a 24.6% spread, but something is really bothering me here. The bear number is only 20.4%. That's just too low. I would like to see a number approaching 30%. I'd love to see the bulls move from 45% to somewhere, anywhere, in the 30's. If these things take place we could see a spread of less than 15% or better. Maybe even inverted.
There's no doubt that the divergences are the biggest problem in the long run, and they still seemingly have a way to go to the down side. Neither problem is a reason for a bear market. Both are reasons for a bull market pullback, but that's where we are for now. A bull market pullback that's taking more time than people would like, and because it's a bull market pullback, it's a lot slower than we'd care to think is reasonable. You don't annihilate a bull market correction. You pull back gradually, such as we have been doing for the past five weeks to the tune of between 5% and 6%. You have the occasional big day on bad economic news, such as we had Wednesday, and that gets the ball rolling more towards a faster pace, but it's still gradual overall. Two headaches. They take time to eliminate. Patience will be necessary. The process is likely to remain slower than we'd like. Get used to it if you haven't already.
Leaders, leaders and more leaders are breaking down below key critical exponential moving averages. Some of them gave some great head fakes from underneath. They took back lost 20- and 50-day exponential moving averages only to see that go away in a big way today. Stocks such as Baidu, Inc. (BIDU) and Sina Corp. (SINA) had massive downward reversals today that took them from above to below key levels on the exponential moving averages. Suck them in and spit them out. Get folks happy with the move up only to be a head fake, and then they get smoked to the down side.
SINA down over 10 points today after being up nicely early on. That's the market dragging in the froth and teaching them a lesson they'll never forget. Greed kills. The problem here is that when you see leaders get reversed lower such as they did today, you know they're not coming back any time soon, and if the leaders aren't doing just that, who will take over and get the job done for the bulls. Bad news in terms of that action today. Really bad to be blunt. BIDU and SINA are false, fake stocks in terms of their value, but it's where everyone who wants massive gains in a heartbeat amount of time runs. They are severely overpriced, over hyped stocks. Today they saw some real technical damage. Won't be blasting off any time soon, and they were joined by many all over the stock market world today. More negative action for the market short-term.
So, when we look at the close of trading today we need to look at where price resistance and price support is at for the S&P 500 and Nasdaq, the two leaders of this market. With the Nasdaq losing key support today at 2759 we now look lower to see 2706, or the mid April low, as the next resting area. Below that we have an open gap between 2665 and 2675. After that is 2618. The S&P 500 lost key trend line support at 1315, although it's now up to 1320. So, 1315 to 1320 is key resistance. 1294 is next support followed by 1270 gap and then huge 1260 trend line support off the 2009 lows. 1249, or the last major low, is after 1260. It's best to respect today's bad action as it being the real deal. It took three attempts, but we lost key 1315/1320 support. Now the bears are more in control than the bulls. With jobs only at 54K today, with expectations at 180k, this is a sign that the market will struggle more. So easy on getting aggressively long here. Slow and easy. Cash is a great position.
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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