Stock Market Froth Annihilated...Money Moves Around.....

Stock-Markets / Stock Markets 2014 Sep 16, 2014 - 09:52 AM GMT

If you were a high-beta stock, or a four-letter stock with froth behind its name, you were slaughtered today. Little mercy out there for those who recently bought a plethora of stocks in the world of the Nasdaq or small cap stocks. The carnage across the board, yet the market didn't fall very much except for those areas. Some sectors were slightly green. Money refuses to totally leave as the big boys were transferring their dollars to those lower-beta, higher-dividend stocks. No mass exit yet. It can't be argued. Many stocks, the leading stocks in the Dow were up overall. The Fed still is making her actions felt for the bears. The low rate environment allowing transference of dollars.

Of course some days the bears will have their day, but at least they had a feast in the Nasdaq today. Stocks such as Netflix, Inc. (NFLX), Tesla Motors, Inc. (TSLA), and a boat load of others were just crushed today. As usual, out of the blue. No warning with the masses getting in at the top as evidenced by recent higher volume in the names killed today. It never fails. It truly is wash, rinse, and repeat for those who can't help, but always try to chase greed. A sad reality, but the lessons will always be there. New folks will have to be taught the same lessons over time, while the ones getting hit now are moving on with their lives in a different direction. So, while today did show nice action in the big cap lower beta, higher dividend names, the froth world was handed a terrible lesson in greed. Overall action was not bad, but many feel as if the whole market crashed today.

Every eye and every ear will be tuned in to the Fed Yellen's statement on Wednesday is at approximately 2:00 PM ET. Will she hint at raising rates? Will she hint again that rates aren't going anywhere higher any time soon? What will she say about the risk of inflation? And the beat goes on. Her words are going to be huge in terms of market direction. Wednesday could be insane with volatility. Huge moves, potentially, both ways. She's under some pressure to start raising rates for fear of run way inflation, but she's also under immense pressure to keep the markets higher for if it falls hard she fears losing the economy. That's what keeps her up at night.

The fight between inflation and losing the stock market, which means losing the economy. I think she wants the market up as much as possible for now. I don't think she fears the inflation risk enough at this moment in time. Why? Because of her recent words and actions. She's not acting fearfully about inflation because her actions scream of protecting the economy in any way possible. We shall see. Maybe she's about to change her mind, but I don't think so. The question then becomes, does the market even care at this point about anything she does? Is it simply ready to sell no matter what due to froth? So many unknowns. Just be aware of all possibilities. Don't play where the damage will be greatest as seen by today's action in the Nasdaq. Wednesday is going to be huge and probably very wild. Buckle up.

Since the Nasdaq is leading down we watch to see how it handles massive resistance or the 50-day exponential moving average at 4477. The second test of the 50's is close to being upon us. Last time we lost, it started back testing with gap ups, and, thus, where we are today. A loss of 4477 would give the bulls less of a chance of recovering those lost 50's. It's just way too soon to speculate, but we watch 4477 very closely. If that goes away and froth loses critical support it's likely the rest of the market will fall as well, although probably not as hard as the Froth world of the Nasdaq stocks. 1972 the 50-day exponential moving average on the S&P 500, and if we see both the Nasdaq and S&P 500 lose their 50's the selling should, I say should, accelerate.

For now, we know the importance of Wednesday, thus, you should adjust accordingly. Do what feels right to you of course but understand risk heading in to this key fed moment.

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.

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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