Stock Market Still Nowhere.....

By: Jack_Steiman

After all that's gone on the market is holding where it has to hold. We got the news everyone wanted over the weekend. The two sides agreed upon a very unhappy package that, basically, both sides said it wasn't what they wanted, but it was the best they could do. The Dow futures shot up 200 points last night. The S&P 500 was up 23 and the Nasdaq 36. Things were looking super for the bulls. Even though the package was awful, the market was celebrating the deal. Default averted for the time being. The futures held the majority of its gains overnight, even though European stock markets were struggling for green. The futures were up on the Dow roughly 150 points at 8am. Then about 140 points at the open. That was pretty much it. They started to move down gradually as the first thirty minutes went by. Then something far more important than the debt ceiling package hit at 10am.

The ISM manufacturing report came in well below expectations. It showed a reading of 50. Anything below 50 is recessionary. It was supposed to be above 53. Bad news as the economy is dropping rapidly. That was it for the market. It fell hard and fast. It fell roughly 300 points from high to low within an hour of the open. We tested lower to the long-term up trend line off the March 2009 lows at approximately 1275/1280. 1276 is also the 200-day exponential moving average. We hit 1274, and then started the usual move back up. Just when it looked hopeless, it wasn't. That said, it was still a bad day in terms of how the market reacted to the good news from last night.

After all that's gone on the market is holding where it has to hold. We got the news everyone wanted over the weekend. The two sides agreed upon a very unhappy package that, basically, both sides said it wasn't what they wanted, but it was the best they could do. The Dow futures shot up 200 points last night. The S&P 500 was up 23 and the Nasdaq 36. Things were looking super for the bulls. Even though the package was awful, the market was celebrating the deal. Default averted for the time being. The futures held the majority of its gains overnight, even though European stock markets were struggling for green. The futures were up on the Dow roughly 150 points at 8am. Then about 140 points at the open. That was pretty much it. They started to move down gradually as the first thirty minutes went by. Then something far more important than the debt ceiling package hit at 10am.

The ISM manufacturing report came in well below expectations. It showed a reading of 50. Anything below 50 is recessionary. It was supposed to be above 53. Bad news as the economy is dropping rapidly. That was it for the market. It fell hard and fast. It fell roughly 300 points from high to low within an hour of the open. We tested lower to the long-term up trend line off the March 2009 lows at approximately 1275/1280. 1276 is also the 200-day exponential moving average. We hit 1274, and then started the usual move back up. Just when it looked hopeless, it wasn't. That said, it was still a bad day in terms of how the market reacted to the good news from last night.

On the other hand, the bears had the bulls dead and buried, but as usual, let them off the ground. A strong finish allowed for things to be looked upon as neutral short-term. Yes, a poor reaction, as I said, off the debt ceiling news, but a great close off the trend line test. In the end, all of this news and nothing from nothing. The bears really had their chance today, and may get another chance soon, but you can't argue with the recovery in the last hour. It was a fabulous save when things looked dire. It's hard to judge today as we'll need more time to understand what's unfolding here. The political news is still playing out, so we need to keep an eye on things, but the bulls saved the day late but failed badly early on. Did I say whipsaw? You bet. May continue on for quite some time. Bulls are far from dead here, even though they should be based on the economic news. They usually find a way.

What usually performs poorly in bad markets these days? Yes, financials and semiconductor stocks more than anything else. Today was no exception. The usual under performance. The SOX triple tested 381 and held the line in the sand. A break below 381 would be bearish on a closing basis. 397 is strong resistance. Watch that sector for market clues at all times. We all know the financials are the reason for the mess we're in. That sector has lagged for many years, and today is no exception. Just no real bid, although it did close off the lows just like the rest of the market. These two sectors rarely lead, although at least the semiconductors have had a moment or two. The banks basically never do. These two areas are still the two most bearish areas of the market, and thus, you should be looking elsewhere when trying to go long. Some day that will all change, we hope, but until we see evidence of such a change, it's best to keep away from what's simply not working bigger picture.

The focus for the market has been on the debt ceiling package, and that formality will be voted in tonight. There is nothing better the two sides can agree upon, thus, it'll be voted in. Once this nonsense is over, the market will then focus on what really matters, the economy. Will there be a QE3 program? What can the fed or the President do to stimulate the economy that is spiraling down? For now, there are no easy answers as the two QE programs failed miserably. Why even bother with a QE3 is what the fed has to consider. Why create more debt! That's not something we can really afford to be doing here, and let's face it, that's all the QE programs did. The fed and the President sadly seem to be in a box here with no real out. All of this, however, does not mean the market crashes out. I've seen stranger things occur.

It isn't good news for sure and the market will be totally dialed in to the employment report on Friday morning. The market always wants to be hopeful, thus, it will likely be waiting on that report before deciding what it wants to do, manufacturing declines, or not, into recession. Market basically always go higher, even if they go nowhere over a decade. Short-term bear markets allows for no overall gains, but in that period of time the markets go up most of it. You should never be shocked when a market holds up even when it seems it shouldn't or can't. So once this debt ceiling is passed into law, the market will turn its focus to the economy. Right now it seems pretty bad.

Today's high at S&P 500 1307 is now resistance. A downgrade from the S&P 500 won't allow that level to be seen again, but there's supposedly pressure on them not to downgrade the debt. That was a headline from CNBC earlier today. So maybe even this horrible package of one trillion in cuts won't get downgraded. It should, but maybe it won't. It may not matter. The market will split the bit soon enough if we head into recession. We're very close to that for sure. Maybe all anyone needs to do is buy Apple Inc. (AAPL) and walk away. If not, cash and very little market exposure is best for the short-term.

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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