Stock Market Where We're At...
Stock-Markets / Stock Markets 2011 Sep 17, 2011 - 12:12 PM GMTBy: Jack_Steiman
This is the bigger picture question we have to deal with. It's always fun to look only at the little picture, because most people are so short-term oriented these days, and really, who can blame them with how fast the markets move. They want to know what's going to happen today, and who cares about tomorrow. Who cares about months from now!! I do, and so should all of you. For this reason, I thought we'd take a look at things the way they are now, and then decide what's around the corner for us all.
The bigger picture is key for so many obvious reasons. Even though this is a trading service, most of you have 401k's, and other investments to worry about, and natural curiosity makes us want to know what's dead ahead of us. The picture isn't very bright right now. That can always change in a moment if the right news hits, but there really doesn't seem to be anything leaning in that direction. I'd love there to be, but for now, there isn't much to get excited about. Think about things folks. The ISM Manufacturing Report has spent two months right at the edge of contraction, meaning recession. The Jobless Claims Report that comes out every Thursday morning keeps going in the wrong direction. to add insult to injury, we just heard from Bank of America Corporation (BAC) that they're laying off 30,000 people. I don't hear of anyone hiring 30,000 people. Do any of you?
The huge layoffs continue from Cisco Systems, Inc. (CSCO) to Bank of America, and beyond. We were below 400,000 claims not too many weeks ago, and now were well above, and looking down at 400,000 claims. It's risen very fast as many huge layoffs are coming home to roost. If claims are rapidly rising, which they are, how can we bode well for the near-term for this economy?! I don't believe it looks good at all. Because of the massive layoffs, we're seeing those who are still working being taxed with extra work. Initially, many can handle the jobs, but instead, we're now seeing more job losses and a reversal in that we have now posted three straight months of negative productivity. This has never happened before, and people just can't handle the burden being put on them. This can only cause deeper problems for everyone, including how these corporations show profits. Unhappy workers can't be good for business.
In addition, we're seeing folks pull in on their spending and increase whatever savings they can muster up. Not spending as they used to is never good for the economy. So yes, sentiment is helping the market short-term. But no, this won't last until we see things genuinely turn around, and for now, there seems to be no sign of that happening any time soon.
With all that said, I want to know what is the fed thinking about day after day. I'm not sure I like what I'm hearing as the rumblings are that Mr. Bernanke will start another stimulus program of some type sooner than later. It's exactly what he doesn't need to do. Every stimulus program has been a colossal failure. The next one will be too. Sometimes there's no way out and that's not necessarily a bad thing. Sometimes we just have to take the pain associated with years of bad behavior started by Mr. Greenspan. The masses took the candy offered, and now we're all paying for it. Let's keep paying until we stop. Do it naturally. Throwing more good dollars after bad, which will create more debt than we can handle, is definitely not a good thing to be doing in these times.
This will not only cause deeper pain throughout the coming years, it will cause a longer bear market. It's bad enough as it is right now. Why make it worse? It appears that they are afraid to do nothing, and think that they have to act as the pressure to do something rather than nothing is so intense. It's too bad, and I think Mr. Bernanke knows he should do nothing. He has hinted at doing little to no more stimulus, but so many are pressuring him to save the economy, and I think he's probably going to make another huge mistake. I hope not, but I don't feel good about the decisions he makes. Every stimulus program he puts out there will extend this bear market. It would end so much sooner if he'd walk away from the pressure and simply tell the world, you all behaved badly and you will have to pay for your acts. So, deal with it!! Let's hope he gets things under control and doesn't cave into the pressures all around him, but sadly, I think he will.
Sentiment is protecting the market for now. It won't last forever. It's nice to see so much pessimism in the market place. It's giving the market a technical bounce. We have an inverted bull-bear spread coming into this week's action. It's minus 5.4% to be exact. That's really good news for the bulls, but again, it won't last forever. As the market hangs in a bit, the sentiment will start to switch back to more neutral territory in the coming weeks. That would open the door to another leg down in this market if the economic news doesn't get better in a big way. Based on how things are today, that type of economic news is more than unlikely. It's impossible to tell just how long it'll take to unwind the extreme levels of bearishness we have right now, but it should take a few weeks at the very least.
Extreme pessimism also doesn't preclude the market from having some very bad days. It's just more difficult to sustain bad days one after the other, such as we saw when this market fall 19% in just eleven trading days. It's a bear market as long as we're trading below 1260 on the S&P 500, so you shouldn't expect a new bull market just because we have sentiment on the side of the bulls. There will be days that remind you of where we're at, but for now, sentiment will likely protect the market from a severe meltdown. But in time, this indicator will no longer work for the bulls, and then it'll be a market reacting only to what's taking place economically. I wouldn't be bullish here based on that premise.
Look folks, I don't want to paint only a gloom scenario for all of you. There is always hope. The market will smell the bottom of this poor acting economy long before we see it. The economy has been bad for quite some time now, and while it could get much worse, we have yet to see the type of reports that makes it a slam dunk that a recession is here. It's close, but the market has fallen quite a bit already in reaction to that economic slowdown. If, for some reason this is the worst of things, maybe, just maybe, we've seen the worst of it all. Maybe we retest 1101 S&P 500 one more time, and then that's the bottom of this selling period.
There are things going on out there that I have absolutely no clue about. Maybe there is a way out of all of this. I don't pretend to know what that is, and even Mr. Bernanke doesn't seem to have an answer. However, I have seen stranger things take place unexpectedly. Nothing is absolute. I think the market is saying it wants confirmation that the manufacturing sector has entered into contraction. It's on the edge. Right at 50. Below 50 is contraction. Once the market sees a number somewhat below 50, the market is in much bigger trouble. The next report is October 3rd. We'll all anxiously await the results.
It's important to keep in mind what's at work here bigger picture and that is a bear market is in control for now. We'd have to blow through S&P 500 1260 to change that reality. That won't be easy. In the meantime, we play according to that bigger picture reality. When we play counter trend, we play lower P/E stocks. We don't hold too long. Sentiment makes shorting tough for now but that doesn't mean you just go out and buy haphazardly here. Protect yourselves. Lose greed thinking. The market is very dangerous due to conditions both here and in Europe. It is time to be tip toeing your way through.
Peace and enjoy the weekend. Play with kids if you get the chance.
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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