Stock Market Rough Week...Bears More In Control

Stock-Markets / Stock Markets 2012 Oct 27, 2012 - 05:43 AM GMT

The stock market spent the week struggling along as the majority of leading stocks fell due to bad earnings reports. The poor reports were pretty much across the board. Make no mistake, there were many very solid reports as well. It was not all gloom and doom, but there were quite a number of reporters who said things seem to be slowing down harder than previously anticipated. What's really interesting, in a not so good way, is the fact that there were so many CEO's who seemed genuinely surprised by how fast things have turned down from a global perspective. Many talked about the need to lower guidance quite a bit due to uncertainty about whether things will start to improve. They'd rather err on the side of guiding lower than they should, so they don't disappoint once again in three months. If things improve, then they'll be able to surprise and beat those lowered expectations.

With too many leaders disappointing, such as Apple Inc. (AAPL) and Google Inc. (GOOG), the Dow and S&P 500 saw some very respectable losses, which tested key support, and in many cases, went through those support levels. The S&P 500 lost its 50-day exponential moving average at 1428. It's also trading below trend line support now turned resistance at 1420, not to mention trading below 1435 or its 20-day exponential moving average. Bad action there.

Not only did the S&P 500 lose all of those key support levels, but it has now done so for four full trading days, which is never good for the bulls simply because the longer you trade below key support the harder it is to take back simply because the bears are feeling better about things and will get more aggressive when those levels get back tested from underneath. Bottom line is it was a bearish week technically. It was a good week for the bears, their really first good week in quite a few months.

Mr. Bernanke was out this week with his usual six-week, or so, speech regarding the state of the economy. The market was listening carefully, not to mention, hopefully, about whether he planned on doing some new form of stimulation. Hard to imagine he could do more than he has already. He just gave another QE program. What more can people expect?

He seems to have used up all of his bullets. He said absolutely nothing of interest, thus, once done, the market continued on its downward move. He said inflation was under control, but rising a bit more than he'd like. Really? No kidding! Food prices have exploded higher, and in case he wasn't aware, people still need to buy food. The Government has decided not to use food in its measuring of whether inflation is a problem. They don't use energy as well. Sad but true. So, yes, Mr. Bernanke, you have created more inflation without helping the economy recover. Congratulations! The Fed has now been rendered useless for the stock market, although I imagine he'll keep trying. He failed this time around.

For now, the best thing you can do is play very lightly from time to time when the situation arises. But keep in mind, getting aggressive makes little to no sense at all. Tough to get aggressively short simply because daily RSI's on the index charts are nearing 30. Just slightly above. You don't want to get too aggressively long because there's a lot resistance above from gaps to moving averages. It's a market that begs for cash as your overall number position.

Go slow and be patient. In time things will set up better, but, for now, caution is the best way to proceed.

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.

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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