There is much to discuss, but let's start with the news that's on everyone's minds. We all know those two annoying words by now. Debt ceiling. Yes, the debt ceiling and its daily annoyance to everything that is the stock market. Slowly, but surely, it became part of our daily lives. In our minds we began to wonder about whether it would be taken care of by our leaders. Then the days moved on, and the stock market began to take on a larger role with respects to wondering whether things would get taken care of by our leaders. The closer we got to August second the more annoyed the market seemed to get with what was taking place. It began to send a strong message last Friday. Then all week the market fell.

Every day that went by without resolution the market fell lower. Even today, with the deadline rapidly approaching, the market refused to rush higher because the two sides remained at odds with each other. You'd think the market would have more faith that over the weekend things would get cleared up. It could, but the market isn't showing great faith.

Today saw the market get oversold on the short-term charts, rally and then falter late in the day. More bear market type behavior, or to put it another way, more of a we don't think anything great is coming out of Washington this weekend. A bad day, and the sixth straight day lower in the market. The market simply said it doesn't like what's taking place between the two parties and won't make a big bet on them doing what the country needs.

Now we look at the economy. It's almost hidden behind what's going on in Washington, but in truth, is far more important bigger picture. We had some very important reports this week, two today alone, on the state of the economy, and the news is bad to be kind. We saw a big drop in durable good purchasing. We saw a much bigger than expected drop in total GDP and from the Chicago PMI. For a short period of time things were looking a little better on the economic front. Now, things are clearly on the decline once again and in a pretty big way.

The decline in manufacturing and everything else is pretty rapid and came out of nowhere, which once again shows that the feds QE program was a total disaster, and did nothing but create a lot more debt. (Cisco Systems, Inc. (CSCO), Hewlett-Packard Company (HPQ), Microsoft Corporation (MSFT), Quantum Fuel Systems Technologies Worldwide Inc. (QTWW), and many others.) He was out of cards to play, and tried, but did far more harm than good bigger picture. Soon, once this debt ceiling issue is behind us, or even if it isn't, the economy will become the discussion of the stock market. Right now the market can't be at all happy in any way, shape, or form, with what it's seeing. You won't be seeing any further QE programs, either, to help out unless we get a market crash, and even then it's no guarantee.

The market is playing with some very important support levels here. The 200-day exponential moving average on the S&P 500 is at 1276. Trend line support, long-term trend line support off the 2009 lows is at 1275/1280. Clearly this 1275/1280 area is massive support, and the only line of defense between the ultimate support level at S&P 500 1249. We got as low as 1282, precariously close to breaking that key support level. It would take some very bad news to get us below it, but that news does exist if things continue as they are on both the debt ceiling front and the state of the economy, which is clearly eroding down.

The economy alone over time would be enough to do the trick in terms of losing key support if it continues on its current path. The debt ceiling could as well. Even if we get resolution on the debt ceiling, over time the economy could take this market down in a big way. We watch with great interest the 1275/1280 level. If we lose 1249 with force we are entering a new bear market. We're far from it but getting closer that we'd like. If we have another month or two of poor reports from manufacturing and employment, the market is in very big trouble.

There has been a huge mix of winning stocks and losing stocks on their earnings report these past few weeks. Some stocks have exploded higher, and while many have imploded lower. Huge swings, which we normally don't see, and this is because the market has changed its way of looking at these individual stocks. It's stock specific now. If you're good you survive and are rewarded. If you're poor you get crushed. Not the normal bull market way of how things were done in the past.

In the past, if you were bad in an ongoing bull market, you were given a pass. With the economy faltering, that's no longer the case. You need to stand out and get the job done. No free passes in this environment. My concern with even the good stocks is are they misjudging what's coming up. Those who guided higher may get caught off guard if this economy continues to falter. You need to keep tabs on those stocks that did well and those that did not. If you're looking to play longs, focus on the good earners and vice versa with those who did poorly. Short only the bad ones. The game has changed. Adapt to it.

Folks, we're all tired of what's taking place with our Government and the debt ceiling situation. We are on the precipice of something very bad. No way to know how this gets resolved. When times like these, which are rare fortunately, show up, you do best by staying out of harms way. Lots of cash, if not all cash, is best for the short-term until we have more clarity on things. Play slow, relax and, watch how things work themselves out in the days ahead.

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.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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