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Stock Market Big Gap Down But NO Follow Through....Hollows Abound.....

Stock-Markets / Stock Markets 2013 Apr 06, 2013 - 06:34 PM GMT

By: Jack_Steiman

Stock-Markets

The bears finally got the news they so sorely needed. The market wasn't ready for another disappointment regarding economic slowing, but the number on the Jobs Report was quite poor. 88,000 jobs created instead of the 200,000 that was expected. The futures weren't very happy in front of the report and certainly wasn't happy after it. The futures fell hard allowing for a large gap down open. The real question once the large gap down occurred was whether the market would have a day that saw the gap and run lower, or would it be gap and reverse some, allowing for hollow red candles.


The first hour saw hollows and when the day was over we had hollows as well which opens the door to a drop of potential buying early next week, but you never know. At least the bears got their gap down and a down day. The bears just couldn't get the market to keep on running . So yes, the bears did make some much needed noise, but they did not have the gap and run they would have loved to see take place. Leaves the door open a bit for the bull to potentially move things back up next week, but nothing will be easy for either side, that's for sure.

The Jobs Report came in badly along with the two most recent jobless claims report. Add in a poor ISM Manufacturing Report. So why did the market recover today? Because of the sequester. The market using the two-quarter GDP pullback to come because of the sequester to justify why it didn't want to keep selling. The market seems to like looking for excuses. When a market has a liquid fed behind its back and built in excuses, the gap downs don't always hold. It is what it is.

The bears are rightfully frustrated, but if it is just a two-quarter phenomena, then you can understand why the bulls just won't give it up that easily and why the bears are having trouble finding the necessary army of players to get the job done. At some point things will have to get nastier, but for now the bulls are still in control. Truth is, we don't know if the sequester is a two-quarter event or not but the philosophy of the bulls is they're told it's supposed to be no more than that, so why let it bother them from buying up weakness. The bulls, and the rest of the world, may not be happy when those two-quarters are up and things don't look to be improving, but for now, the bulls aren't worrying about that at all.

Disconnect. The market is so disconnected from the real world it's almost surreal. When you stop and take a moment to think about the truth of all things economic, you realize that something just isn't right here. The real unemployment rate is so much higher than what is reported. Our government likes to think they're fooling people, but we all know that they do NOT include those who can no longer collect claims. Those who are simply unable to find work are not counted. How convenient!!

You know the market knows about this and it makes you wonder how stocks can trade at such high multiples. But the key to success is disconnecting your brain from the truth. The truth shall not set you free when it comes to the stock market. Not at all. The truth will hurt your portfolio. The market has proven all it needs to be happy is liquidity, forced low rates and all is well, no matter what is going on in the real world. That will probably continue on.

While we did get a strong recovery today, it was a down week for everyone across the board. Some solid moves lower to support for the week. The strong hollow candles suggest we should try higher at some point early next week, but we do not have an all-buy signal here. There are still negative divergences. The weekly and monthly charts could use more unwinding, and we could surely use more bears to join in, in order to get the bull-bear spread back below 30% and the bears above 20%. The Nasdaq had lost key gap support at 3200 today but managed to close three points above, thus, saving this key level of support. Over time, since the Nasdaq is the market leader, the bears will need to remove this level with force in order to get the market to move appreciably lower. Until it does, all they've done is get a small pullback which has done some needed unwinding.

Have a nice weekend, and we'll see you next week

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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