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Stock Market Unwinding...Nothing Bearish...Fed On Deck...

Stock-Markets / Stock Markets 2016 Jul 26, 2016 - 07:28 AM GMT

By: Jack_Steiman


Can you believe it! The market pulled back for a whole day. Who knows, it may do two days in a row. You never know. It's not unusual for a market or a stock to come back and test the level from which it broke out. In this case it's S&P 500 2134. I don't know that we'll get that low, but it's always possible for this market to back test. The fact that it shot decently past 2134 allows it to have a reasonable pullback without breaking support as it unwinds. It would be healthier for the market to back test and get some unwinding, but if it does actually do that, it would likely scare folks that we had a false breakout. I don't think that will occur. It would if the market was playing the real world, but since the market rarely does that it's quite unlikely that we'll break far below 2134 on the S&P 500, thus causing a false breakout from a couple weeks back. The bulls waited a long time to get this breakout, and, with the bears mostly silent, it would be a surprise if this move was a false one. Anything is possible, but it makes little sense.

The bulls should throw everything at this market if we head back towards S&P 500 2134. And they should have a successful time of it. You'd want to see a bottoming stick if we had back towards 2134, but it doesn't have to work that way. If the big money doesn't want to show its hand they may allow for a full candle close down, and then simply reverse things without warning. Surely, they don't want you in. We can hope for a bottoming stick, but we don't have to have one. In addition, we don't have to have a full retest of S&P 500 2134. Just keep in mind that back tests are normal and we could get it at any time since we're living in a stock market of manipulation. Today was nothing bearish, so don't get too disappointed, even though most of you are thinking that upside action is the only legal action in this market these days. Today was fine. We could be barely down and folks will think what happened. Froth is building quickly. So keep today in mind for what it was. Simple unwinding and nothing more.

On Wednesday during the day we get the next round of Fed nonsense. We get to hear her talk about why they should keep rates low for the foreseeable future. They'll talk about the fear from Brexit and how they have to watch to see what longer-term affects it has on the rest of Euro zone. They'll also talk about things being data dependent. They'll need to see many consecutive months of job growth, etc. The nonsense will equate to no new rate hikes, which is what she wants at all costs because that is the single biggest reason for this bull market doing what it's doing. The perception of free liquidity is there as well, but that QE money to the banks really hasn't done a thing whatsoever.

Low rates are single handedly the reason for this bull, since there's nowhere else to go with your dollars if you want a decent return. So the market will hang onto Yellen's every word to make sure there's no new rate hikes to come. Once she lets us all know none are coming, then it's likely the market will start to move higher once again. It may not happen immediately if we're still unwinding, but it will play out over time. The market just wants reassurance that rates will stay near zero for a long time to come. While anything is possible it's unlikely that she'll hint at anything with regards to rate hikes. The market has no excuses with regards to holding 2134 after waiting so long to break out. Unless she says the absolute most wrong thing, the market should trend higher overall with normal pullbacks along the way. 2134 should hold on a closing basis. Just a reminder. If the market was running on truth, it's my belief it would be trading near S&P 500 1000. Don't worry bulls, we're not dealing with truth just yet.

Just something to keep in the back of your mind.



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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© 2016

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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