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Europe Rules Stock Market Trend......20's Sold On Back-Test.......

Stock-Markets / Stock Markets 2012 May 31, 2012 - 02:27 AM GMT

By: Jack_Steiman


The United States stock market no longer trades on its own. Those days are behind us. Whatever takes place overnight in Europe is what we see when we wake-up, regarding our stock market futures. If Europe is down big, then we're down big. If Europe is down a drop, then we're down a drop. The same holds true on the upside of this equation. Europe is facing some terrible news on an almost daily basis, and this is causing their markets to spend a lot of time heading south. A few days to the northern side of the ledger, but mostly it goes south.

Last night you would have thought our stock market saw something positive coming out of Europe as it staged a nice gap up that ended up holding very well yesterday. It gapped up and ran, pulled back, but then ran again late in the day. That tells me the market wanted to go higher today, but Europe was clearly not on the radar, even though we closed well yesterday.

It had a nice, strong gap down today. The action was never positive in terms of a huge comeback. A poor day for the bulls, while the bears have to feel great about today's losses. They defended the 20-day exponential moving averages on all the major daily index charts. The transports acted best by reaching the 50-day exponential moving averages, but they fell hard today. No mercy as leaders, such as United Parcel Service, Inc. (UPS), FedEx Corporation (FDX), Union Pacific Corporation (UNP), Kansas City Southern (KSU), and others in that sector just gave it up without a thought. With the transports able to back-test the 50's, you would have thought the rest of the market would do the same, but the rest of the market wanted nothing to do with not only touching the 50's, but the 20's as well. Super-weak action in a super-weak environment.

The carnage today was across the board. No matter what sector you look at, the selling was nasty. The financial and commodity stocks hit very hard, as the scenario of a deflationary world takes a stronger hold on the trading public. The realization of two failed QE programs is taking hold. A third QE program is now thought of as a failure in waiting. We all know it won't work for the bigger picture problems plaguing our world economies. There is no cure, sadly, other than what nobody seems to want to deal with, but that's for another time. Even though it's likely someday, we'll see another QE program, but the market no longer seems excited by those prospects. It knows it won't help, so really, why bother creating hyper-inflation. That alone will kill the masses more than a QE program will help. That in mind, no one escaped today, although there were some winning stocks. Apple Inc. (AAPL) comes to mind, but there weren't very many happy stories on Wall Street today.

Sentiment can be, but usually is not, a buy or sell signal. The signals, when they appear, are rare indeed. Most of the time sentiment is a non-issue. Going in to this week, we saw the bull-bear spread at 11.7%. A great run in pessimism over the past four to six weeks. Just what the market needed. However, this past week, we saw the bull-bear spread move to plus 14.8% more bulls. I thought the numbers would move to single digits. It was a real shock to me to see the market, with its poor behavior, see more bulls creeping back in. It may need a large dose of fear again to get what we need for a buy signal on the sentiment issue. That may mean 1500 points down, or thereabouts, on the Dow. That doesn't have to happen. I'm just saying that it would take that type of loss in points to get the bull-bear spread to have more bears. Time will tell the tale, but for now, the numbers are still neutral.

Massive long-term support comes in on the S&P 500 at 1314, which is the 200-day exponential moving average down to key horizontal support at 1292. A forceful move below 1314 takes the S&P 500 down quickly to 1292. If we lose 1292, we are likely to see 1250 very rapidly. 1338 is key resistance, for now, but let's not think about that for the moment. The bulls are on the ropes and need to act quickly, but there are two reports coming out Friday morning that are huge market movers, the Jobs Report and the ISM Manufacturing Report. If both are bad, look out below. Maybe the bulls can get a real surprise.



Jack Steiman is author of ( ). Former columnist for, 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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© 2012

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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