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The Stock Market Pullback

Stock-Markets / Stock Markets 2013 Mar 02, 2013 - 02:47 PM GMT

By: Jack_Steiman

Stock-Markets The pullback was on. The market was falling very hard a few minutes after a small gap down had occurred. This was a follow-through, something we hadn't seen in a long time, from yesterday's late selling once the negative divergences kicked in. The Dow fell one-hundred points very late in the day yesterday, and, thus, one would have had to expect a follow-through today. So once it came on this morning, the question was how deep was this going to go. The Dow down over one-hundred points and then the much anticipated ISM Manufacturing Report came out thirty minutes into the trading session. The number was a shock and it was spectacular!


ISM Manufacturing Report

The ISM Manufacturing Report was the best in nearly a year. 54.2 versus only 52.5 expected. 1.7 points above is a huge number folks. The selling was over at that exact moment. The bears simply have nothing to grab on to for more down side action. The bulls seized this on this reading and took away the losses. Not that we blasted up as the market seems to still want to at least try and sell some, but the selling, for all intents and purposes, was through for the day. While it wasn't a day of celebration technically for the bulls, the good news on the ISM Manufacturing front bodes well for the bigger picture.

The Bulls and Sentiment

Sentiment is a big part of this game at extremes. The bulls were beginning to have a problem with this potential market mover when the bull-bear spread that I follow from Schaeffer Investing, showed a reading at near the first red flag of 35%. It reached the lower 33% area. Over the past several weeks it has declined to 25.2% with the best news being the bulls having fallen 7%. That's a big drop over two weeks with a market that hasn't really sold very much. Some selling, but not what you would think would take 7% off the top in such a short period of time. In addition, the latest AAII Survey that also measures sentiment shows the bulls at their lowest levels in at least six months. They have fallen hard on that survey as well.

The Bears and Sentiment

The bears were ramping up nicely as well. It seems all it took for sentiment to unwind was one-nasty, two-hundred points down day on the Dow. Once the market stopped going straight up, the bulls started getting pessimistic. Probably had something to do with the headaches that could possibly have been caused by sequestration being right around the corner. Sequestration came and went with no solution, but in the end, the threat of it, plus the selling, has gotten the sentiment issues back to no worse than neutral, which is fine in a bull market.

Sequestration and Liquidity

The market was waiting on sequestration for weeks on end. All we heard on a daily basis was the possibly of no solution as both sides were not going to give an inch. The scary part was what would happen to the market if it actually came and went with no solution in place. What would happen if we knew we were going to take a half percent off Goodrich Petroleum Corp. (GDP), and if we lost 750,000 jobs. The fear became reality today, but the bears didn't get what they wanted. It was basically a total non-event. The market continuing to hold onto the two things they now have on their side. The fact that the manufacturing world is improving is huge news for this market, and, of course, we have liquidity Ben on the side of the bulls, so thus again, these external events are more news events than anything else. They have very little effect on the market with all the protection it's now getting. In the end, it's all about liquidity and perceived future economic stability.

Economy Helps the Market Here

Support on the S&P 500 is at 1506 down to 1470/75. The Nasdaq has long-term support at gap, major gap that is, at 3080. The S&P 500 has resistance at 1530, followed by 1550/1576 and the Nasdaq at 3213. We are whipping around now as the oscillators try to reset some. The good news overall in the economy is helping the market here. Maybe all it needs to do is have an overall lateral period for several weeks, or longer, and then try much higher again. We shall see. Anything new, you but can fiddle about for some time. So simply buy great bases, etc. Take it slow here. Nothing is bad for the stock market at this moment in time. Lots of pullbacks along the way.

Have a great weekend!

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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