Washington Awful... Stock Market Sending Bigger Message?...

Stock-Markets / Stock Markets 2013 Oct 03, 2013 - 11:10 AM GMT

I'm personally wondering if the market is sending a bigger message than just Washington these days. Why? Because the weekly S&P 500 chart has a triple-negative divergence, and the deeper message may be that it's time for a prolonged nasty period here. My thinking is this. If you study a stock like American Express Company (AXP) you get some insight. This stock found itself with a hollow candle three days back right on the 50-day exponential moving average. It followed the way it should with an up day yesterday. MACD was turning up, which is appropriate. Today, no follow through. In fact, a hard nasty fall with a full candle below the 50's. Not bull-market behavior. It doesn't mean a bear market either.

It likely means it's quite possible we have a long period ahead of mostly downside action. How can we know this is a reality? The answer is easy. The reaction of the market in the days ahead, once we get a resolution in Washington. One will come. The futures will rise. The market will gap up. If from that point the market falls the rest of that day, and puts in a poor candle, I think we'll have our answer: a decent period of downside action is upon us. It could mean 1500's for the S&P 500. It doesn't have to, but if we sell once we get a settlement out of Washington, then its look out below. So yes, Washington is the focus. And yes, we'll rise initially once they settle. But the real insight comes once the gap up occurs. Very interesting times.

The market started out poorly today after the puppets ran around, but they couldn't get together in Washington. It rallied once things got very nasty, then fell, and then rallied, and then....! You get the idea. No one knew what to do today, but in the end, it was just another down-day as the market tries to understand the political picture, while dealing with negative divergences on the S&P 500 and Dow weekly charts. There is no negative divergences, however, on the Nasdaq so that's a ray of hope for the bulls, but it's severely negative on the Dow and S&P 500.

The market rose a bit when the usual news came out about this one and that one getting together this evening to talk things through in the hopes of finding an agreement. The market flopped about all day because of the lack of knowledge it's dealing with now. If we get nothing tonight out of Washington we could get smoked tomorrow. Futures are down fairly hard early on this evening so we shall see. The market needs certainty. That's why it struggled today to some degree, whether or not the weekly charts were involved or not, and will struggle further on the news from Washington, if it continues to be poor. The market is sending a message that few at the top care about.

The market is down eight out of the last ten days. Not pretty. Monthly charts are working off overbought, which isn't good news for the bulls either. The weekly charts on the S&P 500 and Dow are sinking. They are being affected by those negative divergences. The S&P 500 is still above critical support at 1674. A close below opens the door to 1655, and then horizontal support at 1627. Below that we see 1598. The market futures are very unhappy this evening. If nothing gets worked out this evening, if there's not even some hope, tomorrow could be very nasty.

We also look ahead to the Jobs Report on Friday, which will be a market mover. And, oh, by the way, unfortunately for the bulls, the spread is now up to 27.3%, even with the mostly poor action last week. We're closing in on 30% again. Bulls don't want any part of that. Bottom line is the bulls need some good political news and fast.

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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