This was a week for the bears. They were able to take all of the key index charts and bring them down with a little bit of force. The indexes were down roughly 2.5% on average, somewhere between 2% and 3.5% depending on where you look. The market had grinded for many weeks and then a few days came with some decent selling which basically took out the gains from those previous weeks. When market fall they usually fall pretty fast and can remove many weeks of prior gains in a very short time span. Today was maybe the most interesting day of the week in that the market was bifurcated in reverse from what we're used to seeing. The market has been better for the bulls the past few months when they concentrated their efforts on the Dow and S&P 500 stocks but especially the Dow stocks. Lower P/E and lower beta stocks with dividends have led the way.
Today we saw the Nasdaq lead the way, but, I have to say, there was a huge excuse. I will touch on the topic of earnings later in this report. It's always best when all sector climb in equal quantities. Today we did not see that so there's nothing to get very excited about at all. It's an oversold rally for now. Lots of resistance overhead, which I will also talk about later in this report. This week, in summing it up, saw us pull off the top fairly decently with the bears now somewhat in control for the short-term. Nothing too horrific, but there's the potential for another 3-4% down across the board over time.
Everyone wants to know the true effects of QE 1,2 and 3. Mr. Bernanke has been flooding the world with real dollars, so tell us sir, how are we doing? Not so good it seems. Manufacturing is getting worse. Jobless claims are worsening as well. Jobs aren't being created as economists thought they would. Not good at all. In fact, manufacturing is nearing recession numbers as the last report was barely over the flat line reading of 50.0 when it saw a number of 51. Not good, especially when it was a fall of nearly 6% from the prior month. There's a bigger concern setting up.
Earnings are well below expectations for the most part. Yes, there are some great reports out there and those reports are being rewarded. However, the number of misses from key companies is alarming. General Electric Company (GE), eBay Inc. (EBAY), Intuitive Surgical, Inc. (ISRG), Albemarle Corporation (ALB), and International Business Machines Corporation (IBM) to name a few over the past two days alone. It's across the board. All that cash and still a very high number of warnings which has to concern everyone. Maybe not the Disneyland of the stock market, but the real world can't be happy. In time, if it continues, it will hit the market as well. Makes you wonder what things would look lie if the Fed did nothing all these years. It would be beyond ugly but probably necessary.
It's not good to inflate world prices while the majority of people lose more and more of their salaries. He's inflating our health care costs. He's inflating our food costs. He's inflating our energy costs. Not our salaries. What's left for him to do? I have no idea but he won't be letting up any time soon as the only way to keep things going for our economy is to keep the stock market rocking and thus he will try with every fiber of his being to do just that. For the current quarter it's alarming to hear how many companies missed on their report and beyond that, how many guided lower for the next quarter or the rest of the year. It's not good thus far. QE is still not working.
When you're in the raging part of a bull market, everything is good. No matter what a company may report on their earnings, the stock will likely go higher. They can say things are bad and don't look very good but the excuses will come out in spades which will allow the stock to rise anyway. If you report good news, you're beyond rewarded. The froth gets out of hand. Just the way it is in the raging part of a bull market. In a bear market you see the opposite take place. Bad news gets slaughtered to the point where you almost can't believe what you're seeing.
Good news won't be allowed to take hold. The bears will find the excuses instead of the bulls and convince everyone it's a fluke and that things will have to worsen. The stock will sell. Where are we now? In between for a while. Good news is being treated as good news. It can even get frothy good. Bad news, however, is being treated as bad news. No grace for now. If you're bad you will pay the price. See IBM and ISRG today to name just two. No love when you don't say the right things. The market is neutral here for a while to allow unwinding. Be more than careful.
Let's discuss support and resistance levels as the market swings about with more of a down trend in place for the moment. The Dow closed at 15,547. First resistance is real close or the 20 day exponential moving average currently at 14,597. If that clears, horizontal resistance is at 14,756. Support exists at its 50 day exponential moving average at 14,359. This is massive support as well as the Dow has been the leader, and thus, it would not be great if it lost its 50's. The S&P 500 closed at 1555. Resistance is just five points above or the 20-day exponential moving average at 1560. One percent above that is horizontal resistance at 1574.
Key support or the 50-day exponential moving average is at 1541. It tested recently, but thus far, it has held. If the Dow and S&P 500 were trading below their 50's the market would be in big trouble near-term. The Nasdaq closed at 3206. The weakest of the major sectors has resistance at 3232 or its 20-day exponential moving average. Support comes in at 3100 or gap while 3086 is the 200-day exponential moving average. Not good if it loses its 200's. Bottom line is things aren't great and their not terrible. I do not believe we're headed into a bear market at this point in time but the market could use more selling. We shall see what the market offers up in the near-term. Lots of risk so please be careful.
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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