Terrorism.... Weakening Economy... Stock Market Finally Bounces....

By: Jack_Steiman

It's old. It's boring. It's pathetic. It's inhuman. It's a lot more than all of that, but what's left to say that hasn't already been said. Terrorism is a sad reality in our world, and will likely never go away in our lifetime, or the lifetime of many generations to come. It seems to be in the DNA of humanity. We had a very sad display of terrorism late Friday night in Paris. Too many perished on suicide bombings. A terrible act toward human life, unfortunately. We're in the business of the stock market, and, of course, the initial reaction of the market was to blast lower after hours on Friday. The S&P 500 was down as many as seventeen points, with fair value included. With the market hanging on by a thread at key, 2020 support on the S&P 500, things looked really bad for the bulls. When terrorism happens a day, or so, when the market is closed, often times the futures start coming back up as the world has grown sadly used to this type of behavior.

The market did just that! It climbed back from the losses, and after a small opening lower, it finally moved up off of very oversold, short-term conditions. The market was pathetic early on as the sixty-minute charts remained below 30 RSI for fourteen consecutive candles, likely the longest stretch in years. Psychology changes fast doesn't it? That said, it was so oversold it seemed as though it had to finally get going. After failure attempts it finally made the move. RSI's hit the teens. Unsustainable. It climbed gradually as the day moved along. Finally, a day off for the bulls. A day to catch their breath. As I'm still trying to understand what's taking place there. There is no safety, but, for now, we can be assured that any move back down will form positive divergences on those short-term, sixty-minute charts as the oscillators did impulse up with price. Not an easy journey, nor discovery ahead. Doing my best.

The market often lives in Disneyland, or the world of fantasy, 90% of the time. It can ignore whatever it wants, if that's the goal, or the market's plan. That said, we are seeing a constant move lower in all of the manufacturing numbers no matter where we look. New York is one place where the numbers need to look good. The empire state, manufacturing number was released this morning, and it was a true disaster. A minus 10 reading. Manufacturing in the toilet in the greater New York region is not good news for the overall economy of the United States.

This shouldn't have come as a surprise, since we've been watching the ISM Manufacturing number go lower just about every month. It's teetering on the brink of recession. Any reading below 50 is a recessionary number, and last month we saw a reading of 50.5. Talk about living on the edge. The report from New York today doesn't bode well for the reading in early December, but you never know what will be reported. Bottom line is, the economy continues to weaken, and if the market wants to use that in its arsenal to fall, it's there for the taking. We shall see what occurs, but the bears are gaining momentum on the economic front.

We now have to ask the question for which there is no perfect answer. How high can they bounce? That is very unclear. There are no true, classic, topping processes going on as of yet, but that doesn't have to happen for a bull market to stop dead in its tracks, and reverse into a bear market. It's good, if you're a bull, to see the 60's impulse up today on the move higher. That doesn't mean much for the big picture, but we should at least get a positive divergence should we move lower once again. Probably means no major selling again for a little while at least. Understanding this market in total is very tough, for now, and needs more study as things move along before getting a better handle on whether we can get that one more new high before it all comes down.

Bottom line is, if you're going to play, it's best to find lower P/E stocks that are showing bottoming sticks. But don't overdo your stay. The market is now far more dangerous for both sides. It's still not showing its hand in detail, which means you can try, but don't get overly aggressive.

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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