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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

No Jobs.....No Surprise...

Stock-Markets / Stock Markets 2011 Sep 04, 2011 - 10:27 AM GMT

By: Jack_Steiman

Stock-Markets

Even though there was supposed to be job creation near 100K, I don't think anyone should be shocked by the reality of absolutely no job creation. When we study the important economic reports that have come in recently, we see an economy that has consistently been heading lower towards recessionary numbers. The ISM Manufacturing Report stuck at 50 for the past two months. Anything below 50 is recessionary (contraction). The fact that we've spent two months at the save place after recently being as high as 61 can't be looked upon in a positive fashion. We've taken a plunge down in the past two months after stabilizing a bit, and now we seem to be on the road to further down side action economically. The saddest part being that there seems to be no way to cure what ills us all. Sure, the fed could give the economy of this country another blast of QE action, but we all know that the past two QE programs did nothing other than to create more inflation for those who simply cannot afford that type of outcome. Most of the fed governors are now totally against this type of program and have let it be known they'd vote against it if Mr. Bernanke wants it instituted.


Never before have we seen such dissent amongst the fed governors. This is certainly not a vote of confidence. More uncertainty doesn't help at all. Just what our economy needs! What the country needs is to allow things to play out the way they naturally should. Maybe that wouldn't feel great, but better now than later. There seems to be no cure. If there was, we'd have long ago seen it put into action. The fed is clueless. Our leaders are clueless, yet all they want to do is make things worse for the long-term by getting some short-term gains in order to further their political careers. Sickens me! We know it doesn't work, but they do it anyway because the market will probably like more stimulus. When it all falls apart again, we'll all get what we wanted. It's getting closer to civil unrest, if you ask me. Bottom line is there is no growth. The economy is spiraling down, and no one has any good answers to what ills us all.  

You don't have to look too far today to understand just how sick this economy is, from foreclosures to banks holding more bad mortgages than we'd like to believe possible. Bank of America Corporation (BAC), The Goldman Sachs Group, Inc. (GS), American International Group, Inc. (AIG), Wells Fargo & Company (WFC), Citigroup (C), Morgan Stanley (MS), and many other financial institutions are seeing more than just a little red. Why else would those bank stocks continue to melt down such as they did today.

Also, as far as economic growth goes, ask yourself why those semiconductor stocks continue to erode. Stocks such as Amtech Systems Inc. (ASYS), OmniVision Technologies Inc. (OVTI), Power-One Inc. (PWER), LDK Solar Co., Ltd. (LDK), Rubicon Technology, Inc. (RBCN), STEC, Inc. (STEC), Cree Inc. (CREE), Universal Display Corp. (PANL), GT Advanced Technologies, Inc. (GTAT), First Solar, Inc. (FSLR), Trina Solar Ltd. (TSL), JA Solar Holdings Co., Ltd. (JASO), and Yingli Green Energy Holding Co. Ltd. (YGE) are among the hundreds, if not thousands, of semis that are faced with the effects of a slowing economy every day. And a slowing economy means less manufacturing, which equals less need for chips, not only nationally, but internationally as well.

These two sectors, financial and semiconductors, continue to perform the worst of them all, and that's not by accident. These two areas of the market clearly point to what is killing us all. There doesn't seem to be anything that'll stimulate these areas for the near-term, if not the long-term. The banks were slaughtered today. The semis were not much better. The trend is the same. Down big. Up some. Down big again with new lows all the time. Lower highs leading to lower lows. The trend doesn't seem to want to change. So, let's adapt. Hopefully, you've avoided these sectors throughout the down trend.

The market fell hard and then started a back test move higher. The index charts made it as high as the 50-day exponential moving averages where two tails on consecutive days were printed meaning it closed well off the highs each day when it hit resistance at those 50-day tests. This normally sets up some selling, which I spoke about in the update on Thursday. The market was waiting on the Jobs Report, and when it came in well below expectations, the selling was on. The market gapped down and spent the entire day in the red with zero attempts to go green. No one really interested in stepping in. It's hard to blame folks for that. The two tails were key, but there was the risk of a good Jobs Report, which could have negated the set-up. Bottom line is once the Jobs Report came in so poorly, the 50-day back test failed and the market was on its way down.

The 1190 S&P 500 gap was taken out and is now resistance with 1235 next. It'll be tough for a while to get through 1190 because that 1190 gap was lost on a gap down. It doesn't mean it can't happen. It'll just be tough. Not good behavior if you're a bull bigger picture. So now 1190 becomes a headache, and you should all be watching that level closely short- to medium-term. 1130 down to 1101 is massive support. Lots of tests in the 1130's that have held recently, and thus, that's what the bears will deal with in the short-term. If they can take out 1130 they can make a run towards the old lows at 1101. That won't be an easy chore either because of the overly bearish sentiment currently existing in the market with the bull-bear spread at 4.3%. So it's really now about 1190 top side and 1130 to 1101 on the bottom.

On that sentiment issue I just spoke of, that shouldn't be taken lightly. It's normally not a primary indicator. It's a secondary indicator, although at extremes it can be used as a primary indicator, and right now it is at extremes. 4.3% spread bulls to bears is a rare thing indeed. It tells us that short the trade is full. Now, with the economic news so bad it would seem a difficult task for the bulls to get much going on the upside.

However, before the market can really plunge lower it may need a period of some upside action overall to unwind some of this bearishness. No guarantee as the number can invert to actually having more bears than bulls, but it is rare, and at 4.3% the bulls may need to ramp things up a bit before this market can fall really hard to new lows and beyond. This remains to be seen, but it's a thought worth exploring. It's possible we hold in the mid 1100's here, and then rally before finally falling much harder.

Sentiment is a player here, so I'll be watching for more clues. My gut feeling is we won't crater out too much lower here. We should hold above 1101. In time we should lose it, but not now, although a big bank failure or a default from a large country, and all bets are off. The market would collapse.

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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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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