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Stock Market Flag...Flag....Flag

Stock-Markets / Stock Markets 2011 Sep 29, 2011 - 03:10 AM GMT

By: Jack_Steiman


Nearly eight weeks old. Not unusual, but definitely boring. The whipsaw driving everyone nuts. There are no rules for length of time. The flag could finally break with a loss of 1101 and reverse just when you think it's over with for the bulls. It could rise up out of the top of the most recent highs only to head fake again and fail, leaving the bulls disappointed. It could also just trade in this flag for a lot longer than it already has. Did that make your day!! The exponential moving averages are stopping the market cold on all rallies for now. Classic bear market action, which is what we're in until we can blow through 1260 on the S&P 500. It's not going to be happening any time soon, I'm afraid, if you're a bull. Sentiment has been holding the market up from breaking down, but that doesn't mean enough bad news can't hit and take us below, even if it's just temporarily. If we get enough bad news on bank defaults, or a default from Europe, we certainly could have another leg lower, even with sentiment such as it is.

Sentiment is a major help but only to a degree. If the wrong fundamental news hits, it's lights out for the market, regardless of how much bearishness there is out there. So the flag is still holding. Normally a bear flag will do just that. Be bearish. It'll break lower in time, but not always. If the flag had enough bad news, over time, when things calm down some for the bears, we could go to 1000 S&P 500, or lower. The measurement is not something the bulls want to hear. We'll deal with that if the market loses 1101 S&P 500 convincingly. So respect the bear flag for what it is. Respect the fact that we're in a bear market. Soon, I believe a strong counter trend rally will take place, but the bigger picture is still bearish, which again, the pattern suggests.

The deflationary trade is rocking in. All you have to do is, once again, look at any stock related to commodities, or the health of the economy. Copper was absolutely annihilated today. It had an 8% loss and a new breakdown on the chart. Silver and Gold were also crushed with their charts looking horrible technically. Classic deflationary moves. The fear of inflation is properly going away as that's not our concern by any means these days. It's about the slowing of our economy as well as the loss of jobs and all else that goes along with a declining environment.

The railroads, which transport goods, manufacturers who make the goods, such as Caterpillar Inc. (CAT), or Deere & Company (DE), any financial-related businesses or organizations have been affected by this slow economy. As well, there's no movement in the housing market. All of this is hitting a plethora of stocks in these sectors. It isn't pretty. Energy crushed. No matter where you turn, if it's related to the slowdown in the economy, you are getting hammered. There's nothing worse than those commodity stocks and all related to them. Again, it's not about inflation. The deflationary trade is on folks. Forget any rally from sentiment where these will bounce. I'm talking bigger picture. It's about deflation.

Froth is what's taking it on the chin the hardest. Not that non-froth stocks aren't getting hit hard as well. They are. However, as hard as they're getting hit, it doesn't compare to the carnage if you're P/E is considered high. In this market environment you have to be more than careful with what you are playing if you play counter trend to the bigger picture. It really doesn't matter what sector you're in, if you're frothy you are getting smoked mercilessly. Chasing these stocks up just because they've fallen quite a bit is not working. The moves lower are intense, and on very high volume as they break support level after support level.

The key is the volume which is showing distribution by the big money. You never want to see big money selling at support, because those levels turn into massive resistance that will be sold off again if it gets that high on any counter trend move. About the only stock I can find that's really frothy and needs to get smoked, but hasn't, is Inc. (AMZN). It's in its own world for now. Its day will come, but the overall massacre on froth is on. You need to be very careful to avoid those types of stocks until the market changes from bear to bull, and that's not likely anytime soon.

The problems that our market is facing are global. This is the key. Most bear markets have been focused on our own back yard problems. For the moment, the problems are everywhere. Asia is talking about lowering their GDP for the coming year. We know of the headaches facing Europe. It's endless really. Country after country is talking about potential default problems, especially Greece. Our banks are still suffering the overhang of Greenspan's poor leadership at the helm in the late 90's and early 2000's. A huge number of bad loans still on the books, and the money handed the banks from QE1 and QE2 just didn't get folks to borrow.

The restrictions are properly high and beyond that, many are now realizing it's not in their best interest to extend themselves due to the uncertainty of holding onto their jobs. Add in just not wanting to live with the stress of more debt, the money is not being used that has been handed to them. Asia, Europe and the United States. Each one is a major headache unto themselves, let alone combining that into one massive package of problems. It's impossible to know how long any bear market will last. The problems need to work themselves out over time. The market will turn bullish before the positive changes occur. That's out there, unfortunately. There will be tremendous counter trend rallies. One is very close to taking place, but again, don't lose sight of the bigger picture. It's a bear.



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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