Global Economies, China Solid...Europe Horrible...USA OK....
Stock-Markets / Financial Markets 2012 Apr 03, 2012 - 02:07 AM GMTBy: Jack_Steiman
Over the weekend, we had to wait on news from both Europe and China regarding their economic condition. We heard from China first. Their news was surprisingly good. This allowed for our futures to be up quite decently early last night. This morning we got the news from Europe. The news wasn't nearly as good as the news from China. In fact, the news was very bad. It showed a rise in unemployment and a rapid drop in their manufacturing report. The news was met with a sharp drop in their futures that went from very green to red. However, what was quite interesting was how the futures actually hung in there fairly well here in the U.S., considering how nasty the reports were from Europe. I would have thought a big plunge would have occurred. Then, I realized that we had our own huge report to deal with thirty minutes into our trading day. The ISM Manufacturing Report, which would tell us whether we were joining Europe in the big plunge, or China in the good news. The news was good.
We got exactly what was expected, or 53.4, which indicates expansion and not contraction. More importantly, the economy is still gaining momentum as we were at 52.8 the prior month. That means there's real growth still ongoing. The market stood still for a while after the report, but then shot higher, gradually, as the day wore on, although there was a pullback late in the day off the highs as we got near overbought once again. The market, overall, took the bad news from Europe as if to say things aren't that bad. That's normal bull-market behavior. This bull market will surely give way to a nasty bear again someday, but that's nowhere near us at this moment in time, in my opinion. The action today, based on the news from Europe, gave us some hints regarding that reality. As long as the U.S. economy is hanging in there, and not showing any signs of a real slow down, we should be fine. That is definitely the path of least resistance for now.
There's a bigger story here regarding what's taking place overseas versus our own situation. We have a Fed Governor, who absolutely is putting the economy and the stock market over inflation. He is worried, for sure, about inflation, but not at the cost of a sinking economic picture. He knows that there are a large percentage of people in this country who are struggling terribly, and many others on the precipice of doing so. If he lets the printing press turn off, he knows this will bring further hardship to those people already in trouble, and allow many others to fall into that same category of despair.
Trying to juggle hyper-inflation with a crumbling economy is not easy, but that may be why he makes the big bucks. I do not envy his situation. It will always be stock market first, and the worries of inflation last. There's just simply too much at risk to act otherwise. Yet, some point in time, he may run out of bullets and tricks. But that's for another time. He's clearly not too worried about that at this point in time. In any event, the Fed is a big buffer in a positive way for this market for now.
The market is now in a tidy-little range between 1370 on the bottom and 1414 S&P 500 on the top. 1414 the old high, and 1370 massive-price support. The key is which breaks first. As long as the news holds in there on the economy, especially on the earnings front, which will be upon us very soon, the market should try to clear 1414, before losing 1370. No guarantees, but if the earnings come in well, the bears will likely be dealing with a breakout cleanly above 1414, before they get a chance to take out 1370. The bulls also have the exponential moving average only about 2/3 of a percent below 1370. Two strong-support zones for the bulls very close together. This will make the job that much tougher for the bears as time moves along. The best way to play things here is to buy weakness. Use good support areas on individual stocks to enter new plays.
Finally, we have the big Jobs Report this Friday. What makes this tough is it will still be reported to the markets, even though it's a holiday. The market will have to wait through the weekend before it can react, making it tougher on traders to decide what to do ahead of time. If it was a regular trading day, they would simply react in the moment. They must decide whether they want to hold stocks ahead of this report. But again, stick with the trend in place, and play it as such. So I believe, the masses will hold for the most part. We'll have the usual lesser important reports ahead of Friday, such as initial jobless claims, etc., but for now, the market held up well through the most important report of them all, the ISM Manufacturing Report this morning. That was a good sign indeed.
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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