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Stock Market Reversal Day....

Stock-Markets / Stock Markets 2011 Sep 22, 2011 - 02:35 AM GMT

By: Jack_Steiman


Best Financial Markets Analysis ArticleThe market really waited for this day to come. The day fed Bernanke would announce just how much stimulus he is going to flood out banks. Would it be another QE program? Would he buy back treasuries? Would he do nothing at all? The answer became clear today when he announced the buying of long-term treasuries. He also told the world he would keep interest rates near zero on the short-term through mid-2013 at the earliest. Does he see ugly times ahead? Bottom line is at 2:15 PM Eastern Time he told the world of the buyback of those treasuries, and the market hated it. It wanted much more than that. It wanted a full QE program, but didn't get it.

The Dow went down roughly 300 points on the news over the hour and forty five minutes. An intense move down with basically no attempts to push it higher. The market gave it up without a fight once it became clear the fed wasn't going to pump the system full of cash. He did the right thing, but that's for another time. The close on the lows opens the door to more selling. The waiting is now over. The news is out, and there's no one to ride in on their white horse to save the deflationary day. The way it will likely stay for quite some time, and the market showed its displeasure. A good day for the bears, but not what they want bigger picture. More on that later in this report.

It's sad to think about how desperate the world is right now. It wants someone to save the moment at the cost of the future. Short-term mentality. It never works. Ask the Japanese and their 80% market crash whether short-term fixes ever work bigger picture. They don't and never will. Few, if any, want to take the necessary pain that goes with bad behavior. I guess that's understandable, but once the hole is dug too big, just deal with it and learn for the future.

I would have hoped the market would celebrate the absence of misappropriated funds. All the QE programs do is flood the banks with unused cash. You can't stimulate just because you make money free to borrow. Folks don't have the ability to pay it back in most cases. Most don't have what it takes to even qualify. You can't open the candy store again and give the cash away. Mr. Greenspan did that, and we see where that got us over ten years later. The economy is dead. Employment creation is dead. Spending is dead. Savings, where possible, is the way people are playing it these days. There's no economic stimulation coming, folks, for the short- to mid-term. There is simply no one to save this situation we've dug for ourselves. Not because our leaders don't want to save us, but because there's really nothing they can do.

To understand just where we are economically, and what the future looks like, spend a little time listening to the feds statement today. There was nothing but bad news all over the place. Every facet of the economy spoke of deteriorating conditions. He said he didn't think employment would be satisfactory any time in the near future. He said economic activity was slowing down and showed no signs of picking up. He said he would have to leave interest rates at near zero for years. This is coming from the one man who is supposedly more on top of these things than anyone else on the planet.

He didn't paint a picture of growth, but rather he said things will be heading south (deflation) for the foreseeable future. When a few Governors says interest rates will be basically at zero for years to come, you have to understand just exactly what he's saying without actually using the words. He's hinting at no recovery. He's saying things won't get better for years to come. That there's really no hope for things for a long while to come. Never fight what he's saying. He knows what's haunting us. He's telling us these things won't go away easily, and for quite some time. We must all adjust.

The seven-week bear flag is still in place, but we're seeing a lot of individual stocks and sectors break down. The transports are on the precipice of a huge failure along with the commodity stocks, which are performing so poorly due to the deflationary environment taking over. With the fed not pumping in inflation, the commodity stocks, and the transporters of those commodities, are really taking it on the chin. No more inflation from this fed, at least not for now. If we get another QE program, these stocks will blast off. Until that time, these stocks will have rallies, but they won't last long.

The technical breakdown in these types of stocks is the real deal. Large volume bear flag breakdowns, so take them seriously. In addition, they have many gaps. Some quite large. These gaps will act as intense resistance so the lesson is, don't fight the tape and try to catch these falling stocks. Let them tell us when they're ready to bottom, if not just for a counter trend move. More and more sectors are acting this way. We know the financials are awful, thus, any new sector that gets hit like this technically makes the market more vulnerable to overall downside action. (Bank of America Corporation (BAC), The Goldman Sachs Group, Inc. (GS), American International Group, Inc. (AIG), Morgan Stanley (MS), Citigroup (C), Wells Fargo & Company (WFC) are all down significantly.)

It's important not to lose sight of the fact that we're in a bear market, even though we have sentiment on our side. The sentiment has been holding this market up above 1101, the last low, but that doesn't mean things are bullish because they're not. The market is still struggling for any sustained upside moves. 1260 S&P 500, the triple bottom breakdown area, can't come close to being tested, even with sentiment numbers inverted 2.2% more bears to bulls. 1270 to 1265 is key support. We then deal with a whole host of support between 1120/1130, and finally the line in the sand at 1101. 1216 is resistance followed by 1235. This is a very dangerous market. Treat it with the utmost of respect. Keep trading very light.



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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© 2011

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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