More Bad News From China.... Stock Market Yawns....

By: Jack_Steiman

China reported their growth numbers yesterday and they were very poor. They were lower than expected, and showed the slowest growth in six years. Not good news again on the economic front, especially since China is such an important importer and exporter of goods. This news gave our market the excuse to sell today, since we are overbought not only on the sixty-minute chart, but on the daily charts as well when we look at stochastic's.

The top level is 100 and we're at 99. RSI is yet to hit overbought, but the MACD's are elevated as well. The economic excuse was in place. The technical excuse was in place, and the result was the usual these days. Not much if there is any selling to talk about. That's what happens when froth turned pessimism in reverse and takes hold of the market. It gets very hard to sell the same way it became very hard to go higher for a very long time. Too much froth led to lateral and then down.

Now we have too much pessimism. Remember, the market doesn't trade on truth. It trades on emotion for the most part. Yes, there are times it seems to run on truth, but when we think it's truth all it really come down to is emotion. The excuses to move up and down are used only when the market wants it to. We see many times when good news is good and bad and vice versa. It just depends on how emotion is ruling the market at any given moment in time. So now with the market feeling better because there's too much pessimism, it's having a hard time unwinding from overbought. We need to sell some as it's not healthy bigger picture to remain overbought too long, because then the selling needed to unwind will have to be deeper both in price and time. For now, the markets behaving as expected. Too much pessimism still in place. Let's hope we can get a bit of selling soon to unwind.

The market tried to break out on Friday over the key, S&P 500 2030 or 200-day exponential moving average level, but made it through by only three points, which does not constitute a real breakout move. Today it closed, once again, right around 2030, but as I mentioned above, at overbought conditions. I would like to see a breakout to 2050 on a closing basis. This would tell me the bears are in real trouble, and then maybe a pullback would only retest the move. The market can stay overbought, and make the move, but this is not the best way for that to take place from a risk reward perspective. A move back down would reset things and give the bulls the energy necessary to make a truly clean breakout move that can stick over time.

A breakout move over 2030 now would likely be a head fake. Not definitely so, but it's far more likely to be so, thus, once again. I would prefer a resetting of all the daily and sixty-minute oscillators. The market doesn't usually give us what we want, but in the end you have to decide when the risk reward is proper, and if we break out here it's not exactly what I'd call risk reward proper. I will get into more plays once and if those oscillators reset. It's best to stay less aggressive out of fear of missing. This doesn't mean a good play on its own can't set up even if the market is overbought. So I will search around to see if I can find that, but overall it's not best to get aggressive at 99 stochastic's on the daily index charts. Do what feels best to you.

I think there's only one likely event that could prevent this market from testing the old highs at 2134 and that's a negative, ISM Manufacturing number on the first business day in November. Negative meaning any number below 50.0. That's the number that separates a growing economy from one that's in recession. As long as the number comes in at roughly 51, or higher, we should have a decent shot at testing back up to, or near, the old highs if not making a new high altogether. For the moment we watch 2030 and a close above with force. We also focus on the nearest areas of support, which comes in at 2020 down to 1995. A day at a time as always.

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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