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Stock Market 60's Unwinding...Economy Stinks....

Stock-Markets / Stock Markets 2010 Jul 29, 2010 - 03:07 AM GMT

By: Jack_Steiman

Stock-Markets

There's a little twist for a title. No matter what these CEO's tell you, the economy has hit the wall. The FOMC Minutes came out today, and they didn't paint a pretty picture at all. It showed how things are slowing down, and that there really isn't too much economic activity, or life, going on out there these past few months. It's scary because this earnings quarter brought about a lot of company's saying things were so good that we're raising guidance. Ouch!! Raising guidance just as things are hitting a stone wall doesn't seem like the best of timing.


Unless things turn around in a hurry, all the earnings reports won't be worth anything. The market will start playing what's coming, not what has been. There just never seems to be a report that gives much hope to economic growth. All the reports are showing deterioration no matter where you look, from housing, to manufacturing, and everything in between.

No matter what the sentiment numbers tell us, and they are definitely on the side of the bulls, they will be ignored soon enough if the economic activity doesn't blast higher. They are not at extremes. 3.3% more bulls is great for the bullish case, but that number can invert to minus 10%, or more, if the market wants to sell. It's not at levels that can't support some decent selling if the news is bad enough, and it is heading in that direction.

Now let's focus on the technicals, which, of course, speak loudly, as we know. I wanted a bit more selling to unwind those short-term charts, or the 60-minute charts, that tell us what's happening over the next several days. The stochastic's on these charts on both individual stocks, and those index charts, got near 100 across the board a few days ago while RSI's cleared over 70, in some cases near, or slightly above 80.

That's an unsustainable combination, and thus, you have the selling over the past few days to help unwind these readings to neutral, or even oversold, in terms of stochastic's. Most of them now have readings below 10 on stochastic's, and are at 50, or lower, on the RSI's, which is fabulous in terms of unwinding, especially when you consider how little the market has surrendered in terms of price. So the technical action is good and appropriate, even though the economic news says things could, and probably should, be a lot worse.

Now we search over to the internals to see if things are selling on increasing volume, and a dreadful advance decline line. While things were down, basically 2 to 1 in terms of decliners over advancers, this doesn't come close to the way things went up quite a few days at 3 to 1, or better. So nothing bad there in terms of too many stocks declining in the overall pattern set up off the most recent price bottoms in the market. In terms of the volume on the selling, the news is good there, as it has declined by quite a bit on the selling over the past couple of days. While volume is truly only important at big levels of breakouts, or breakdowns, it's good to see no distribution or big money selling things off as we trade above 1099. Bullish internals overall.

In terms of critical support, we know 1099 was huge to get through, but we also have the 50-day exponential moving average at 1095.

A huge confluence of support only 4 small points apart. We came very close to 1099 today, but held above. One could argue, now that the trend line is at 1080, that even if we fell to 1080 things are fine. I'm not really in that camp, but I can see that argument. I think it would show a healthier environment if the market held the 1095 to 1099 on a closing basis. With the way economic news is hitting, you can't rule out a test of 1080. If that level was to fold, the market would likely free fall lower, but for now I don't think that's in the cards.

There's not much to get overly excited about folks. The earnings and sentiment issues are on the side of the bulls, but the economic activity is huge on the side of the bears, and that can't be dismissed by hope. With the economy the ultimate leader of things, we have to watch how the future economic reports come out to give us further guidance about ever being able to get to 1131, and then hopefully higher. The deterioration is alarming from an economic perspective, but we can all hope things turn around, and allow for strong gains to the up side in the near-term. If not, we will adjust accordingly.

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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