Stock Market Moving Down.....
Stock-Markets / Stock Markets 2011 Oct 04, 2011 - 02:48 AM GMTBy: Jack_Steiman
Is this a fun market or what! I know all of you have been enjoying the bear market ride for some time now. Well, maybe you haven't been enjoying it, but not getting caught up in it has to be fun to some degree? No? Ok, maybe I'm wishing too hard here, but thankfully, we've avoided a lot of the carnage since S&P 500 1370. Once the SPX lost a triple bottom at 1260 it was lights out. The market has never recovered from that, and likely won't be any time soon, although a strong rally is not too far off. The bear is here bigger picture, and that should never be lost in your minds, even when a strong counter trend rally ensues. A strong rally can make you forget what's really in control. The short-term can always cloud the bigger picture, so make sure you recognize what's at play. Don't get emotional. You'll want to, for sure. I can guarantee that.
Bull markets are more fun. We're not in one, and won't be for some time to come. That day will come again. Even though it may feel as though we'll never see it again, and, it is probably a long way out off, but that day will come again. The move down feels endless because we have spent eight weeks moving around a very large range. It's 1235 at the top on the S&P 500 and 1101 at the bottom. More on the pattern later on in this letter after what took place today. Even in this large range people wanted to be hopeful that things would not break down or that ultimately the worst was over and now it was time to explode higher.
The only reason the bear flag lasted so long was because of the extreme pessimism created by the 19% move lower off the top in only eleven days when things originally went to S&P 500 1101. Moving averages and gaps stopped all attempts on the way up and then came today. So yes, none of this feels good, and it shouldn't, but the fact that you're not getting hurt like the market is should make things, hopefully, more tolerable to you. Don't fight the market. Remember, things are never as bad as they could be, and today was yet another example of that. Adapt, or get knocked out of the game, is the way it is.
The number of sectors getting taken out and smoked is getting too large to count. The losses are anywhere and everywhere, and if you have anything to do with the economy, you're probably involved with massive losses and those breakdowns. It's an equal opportunity market. No real save havens as most would expect except cash. It's a no mercy market. Even some of the old stocks that hold up well in bear markets, like restaurant stocks, are getting hammered. Not all of them, but certainly a larger percentage of them. Much more than usual. A lot of them are very oversold, but are still not showing much in terms of finding a strong bid to unwind those oversold conditions.
Oversold is now staying oversold a lot longer than we're used to because we're in a bear market. In bull markets, the moment any time frame gets oversold, it bounces back hard and fast. Not now. Eventually they will, but many stocks with RSI's in the mid, or even low 20's, are having a hard time getting off the mat. They're spending many days sub-30 on the RSI, and once above often fall right back below once again. A lot of energy is building up for a strong rally, but the nature of oversold is very telling about where this market is in its evolution from bull to bear.
The ISM manufacturing report came out today thirty minutes into the trading session. It showed basically no growth with a reading at 51.6. Contraction is any number below 50. The last three months have seen readings of 50/50/51 meaning no growth, but also no recession. The market has to be a bit happy we're still not recessionary on this key report, but it can't be excited about no growth for a quarter of a year either, one would think. The market is showing its dissatisfaction with all the economic reports these days that, although they're not falling off a cliff, there really is nothing to get hopeful about either.
One more slip and we will be in recession. The market is unhappy about those prospects, especially after the way fed Bernanke talked last week. He said nothing positive about our economies short to mid-term. He said rates will be near zero for at least two more years. That's not sending a message of hope. Instead, that's telling the world that many stocks are still over-priced and need a haircut. They may need some big haircuts as well. If we get the big Jobs Report on Friday, and I can't imagine much positive coming from it. It may not be a disaster, and that's good, but if it's like today's ISM Report, it won't offer much in the way of good vibes either. And the market probably won't love it.
At the close of trading today, we saw a move a hair below 1101 with a close at 1099 on the S&P 500. We are visiting the old lows that began this bear flag. If we can't get back through 1101 quickly, a move down to 1050 or the 1070 area is likely. We're getting very oversold on most leading stocks with the index charts not too far behind. So I'll be in the search for a bottoming stick below 1101, which is what I've been hoping for. This bear market, bigger picture, likely has a long way to go before being over. Get used to it. Rallies should not be held longer-term as if we're in a new bull. The rallies, when they occur, can be very emotional as most want a bull market to be part of their lives. But I don't see it that way. The bear isn't going to be letting go any time soon, so hang in there and adapt.
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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