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Goldman Is The Catalyst For Stock Market Selling...Should Be More To Come...

Stock-Markets / Stock Markets 2010 Apr 17, 2010 - 06:31 AM GMT

By: Jack_Steiman

Stock-Markets

Best Financial Markets Analysis ArticleI said over and over, what the market needed was a catalyst to get some real selling going. Where was the catalyst going to come from? Day after day all we had was good news on both the economic front and on the earnings front. The market couldn't find a spark to ignite it lower. The futures were down pre-market. Market fell pretty good once it opened only to see the same old story take place as buyers came in.


Then, out of nowhere, came our igniter. The SEC announced that Goldman Sachs Group (GS) was being accused of fraud with regards to the sub-prime real estate market. GS sank as much as 25$ and the move lower was finally under way. The excuse was there for the bears to get gutsier and for the bulls to finally stop buying every single pullback. Amazing that it took this type of event to get things going, but that's what it took, and down we went.

The Nasdaq led down even though GS was annihilated because it had some earnings problems to deal with from last night. Google (GOOG) was down nearly 45 and Intuitive Surgical, Inc. (ISRG) down 33 at one point during the day. That's enough weighting to counter GS. Every sector, or just about every sector, took it on the chin to some degree. The selling was fairly consistent throughout the day in to the close. If you were a beta stock you took particularly hard as the market wanted little to do with risk. Who can blame them. It was good to be in lower beta plays overall. Bottom line is the market finally found a spark and we got some very needed selling, although, we could use more.

Now close your eyes for a moment. Ok, take this in first and then close your eyes. A drop of attempted wasted humor never hurts. Now dig this. Imagine you were away for the day. You didn't hear a word about the stock market today. Not a single word. I sit you down and say hey, get this. GS was down over 25 today. GOOG was down over 40. ISLG roughly 25. But wait, there's more. Direxion Financial Bull 3x Shares (FAS) was down over 10. Research In Motion Ltd. (RIMM) crushed. Apple (AAPL) hit. First Solar, Inc. (FSLR) down 4. priceline.com (PCLN) down around 10. And naturally there's scores more just like this.

Tell me, how much was the Dow down today? Take a guess. You would not be considered crazy if you said over 100 points. Think about this. GOOG over 40 and GS over 20!! Never has that happened in the same day before. You could honestly think well over 100 points on the Nasdaq. Ye, look at the market. Nothing from nothing really. Yes, a nasty day but considering what I just told you, you'd be thrilled with what the market gave you in terms of losses today. This shows you the strength of the bull market we are in. Quite amazing, really the resiliency of this stock market.

Now the question becomes how much down side will there be? It's not a perfect science, but I would not expect a whole lot more, although, a few more days of selling wouldn't be out of the question. In fact, it's likely. In bear markets you get some intense up days that get sold back off pretty quickly. In bull markets the same takes place in reverse although we're so overbought we could use more. We need more. If you get bearish here I truly believe you're making an error in judgment, although, I am not suggesting you go out here and buy haphazardly.

The market needs room here even though there are some great set-ups taking shape in the near-term. Some may breach their support and thus look bad technically when suddenly things will come back up. GS was just a catalyst to get some selling. We will be careful not to get too aggressive too soon because you have to respect the market at all times. However, i do think this is a pullback over time that can be bought.

Over the past week we have made sure we would put out lower beta plays. I felt very strongly that this selling was about to take place based on the current market conditions. Just too overbought and too many negative divergences in place on the daily charts. Based on all of this I knew to eliminate beta because those would be the ones that would get slaughtered, and oh how those got slaughtered today. Merciless selling across the board on those higher beta plays made the past few months seem meaningless.
That's what happens. You wipe out a whole lot in a very short period of time. Remember, I said fast and sharp. Today was all of that for so many stocks. So we're caught in a play. Nothing from nothing. Down 90 cents on Sovran Self Storage Inc. (SSS) and nothing else is any lower. We may take off. Not sure yet. May just give the market room. It's a gift only being down less than a dollar on one stock. Feel real good about that.

Bottom line is the market could use more selling. I am begging for it personally as that would set up so many better plays. I don't think we get killed but this market is set up to sell further. Key support on the Nasdaq is at 2460. Let's see if that can hold, and I am watching 1151 S&P 500, of course.

Have a fun weekend.

Play with a child if you get the chance.

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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