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Stock Market Rough Week......

Stock-Markets / Stock Markets 2011 Sep 24, 2011 - 02:52 AM GMT

By: Jack_Steiman

Stock-Markets

And that's putting it mildly if you ask me. The market spent little time printing up ticks, and lots of time moving lower. It was a near crash on Thursday with the Nasdaq down nearly 90 points, and the Dow down nearly 400 points. Intraday it was down 525. Lots of bad news from overseas, especially from Greece, along with bad economic reports right here in the United States, really sparked the selling. It appears more and more as if we're headed for a global recession if we're not there already. Many of the reports coming in suggest were likely there right now with the markets action saying that is the case.


Even though sentiment is on the side of the bulls, the only reason we're still over S&P 500 1101, the fundamental news coming in is keeping the bulls from doing much with the inverted bull-bear spread. Normally things would be moving up much harder and faster with an inverted spread, but the fundamentals just won't allow that at this time. The way things look right now, it may not get well enough for quite some time to come. A lot longer than anyone would care to imagine. We know the time will come when things will get better, but at this point, you can't play on hope.

This week definitely sent the message that things are not getting better, but in fact, are getting much worse with no apparent solution in sight. That's the hardest part for people to deal with, and apparently the market is struggling with it as well. All rally attempts are fading quickly. You get bounces off of oversold, but they just don't last as long as some would think likely after falling so much off the highs at 1370. For now, it's about adaptation. If you don't adjust to the message of the market sent this week, you're likely going to feel lots more pain on top of the pain you have already had to deal with. The bear market is real. It's here to stay for a while longer. This week was another shot of evidence to that fact. Don't turn away from what's in front of you. There's a sick economy both here and abroad. No hope for the short-term. We will have wonderful rallies, but we sure didn't see one this week. It was a rough week, indeed, for all the major indexes.

All bubbles burst in time. No matter what part of the stock market you look at, or focus on, bubbles have existed all through the years. Either individual stocks that get frothy with high P/E's, or specific sectors from time to time. Fear sometimes plays into bubbles. We have been witnessing a massive bubble in both gold and silver for quite some time. The bubble in silver has popped. Two massive high distribution volume gap downs on consecutive days has driven the knife through its heart. Silver is dead on arrival. There will be great rallies for sure, but the distribution in May at the top, and the distribution from lower highs the past few weeks, tells us that the best of the silver trade has come and gone. Gold is in the process of doing the same thing. Why? It's simple.

Gold has been falsely rising on inflation fears for some time. The truth is finally setting in. It's a massive deflationary spiral down. The fed will no longer be pumping the machine the way he had, and now the trade is starting to unwind. It's healthier than silver at the moment, but it's not a healthy beast any more. Silver is dead. Gold is dying. It too is suffering distribution off highs. All good things end. It'll end slowly. These things take time, but the warning signs are clear. Be very careful with these two bubbles that have popped, or are in the process of popping. Enjoy the rallies when they come. Don't overdo your stay, would be my advice.

If you want to know how fast the market has awoken to deflation, take a look at the action in the world of commodity stocks the past few months, especially over the past few weeks. The fall has been stunning to watch as these stocks have absolutely collapsed. It doesn't matter where you look in the world of commodities, the carnage is severe. Scores of stocks we all know and love in the previous world of froth have died. Freeport-McMoRan Copper & Gold Inc. (FCX), Arch Coal Inc. (ACI), Monsanto Co. (MON), Mosaic Co. (MOS), Potash Corp. of Saskatchewan, Inc. (POT), Walter Energy, Inc. (WLT), Alpha Natural Resources, Inc. (ANR), Deere & Company (DE), Cummins Inc. (CMI), and Caterpillar Inc. (CAT) just to name a very few. Add in all the energy stocks. It's scores and scores of stocks. Literally, there's no exception to the rule. The carnage is stunning and rapid. The deflation trade is taking hold. The action in those stocks should leave absolutely no doubt about what we're dealing with globally. It's a slowdown in everything under the sun. DEFLATION. The only inflation we ever have is when the fed pumps in QE's.

There will be very strong counter trend rallies along the way, folks. The key is not to be confused by them when they take place. Some of these rallies will be very playable for a trade, but don't stay in too long. Take profits quickly. The bigger picture trend is down until the S&P 500 can take back 1260 with force. That's the level of the triple bottom breakdown. The market is throwing in some huge gaps to make the job of the bulls more difficult while making the job of the bears far easier. The huge open gap down from 1166 S&P 500 on Thursday is going to make things very tough on the bulls. It's a huge open gap that will find willing sellers, if it gets back up there. Support on the S&P 500 is at 1114, and then the big one at 1101. Resistance at 1161, and then 1175/1187.

As the weeks move the levels seem to be lower and lower. The bears are strong. Since nothing is etched in stone. The fed could suddenly come out with the next QE program and give the market a powerful rally. But that type of stimulus won't work bigger picture. It only delays the inevitable. Stay nimble. Hopefully, the market will offer up a nice rally soon, if we can hammer at, or slightly below, 1101 on the S&P 500.

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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