Nasty Stocks Bear Market Below S&P 1249 Continues
Stock-Markets / Stocks Bear Market Aug 21, 2011 - 08:21 AM GMTBy: Jack_Steiman
We look for defining moments that tell us something has changed. That what was once one trend is now another, although it's hard to see it initially. It's about trusting those technicals that tell you where one market ended and another began. S&P 500 1249 was that level. Losing it lost the up trend line off the March 2009 lows. It also meant losing huge horizontal support, and the bottom of the big triangle in place at the time. It opened the door to much lower prices potentially, and that potential has been filled. I don't think anyone would deny that. It's been ugly since we lost S&P 500 1249. Some short-term rallies along the way, but the trend has been to sell and sell hard almost on a daily basis. Some monster days lower of 4% plus. One day like that is unusual enough. Multiple days like that tell you something is terribly wrong economically.
Markets are the best teacher. They don't lie. They don't know how. It sees what it sees and reacts to it. Today fit the new message. Oversold short-term sixty-minute charts doing nothing to help the bulls. Yes, we rallied hard off the morning gap down with the Dow getting up nearly one hundred points. Didn't last. As the day progressed the market started to fade. By the time we closed the market was down near the low with the Dow down 172 points. The Nasdaq lost 38 points with the S&P 500 chipping in 17. Ugly across the board. No blaming outside forces. Forget the options expiration excuse. It's simple. The market is following a bear market script. Large bounces will occur, but make no mistake about it. We lost 1249 a while back and that set into motion what we're dealing with today. An ugly, nasty bear market.
What set this market into bear mode is what most seem to be trying to figure out because most will tell you they just don't understand why the market is behaving so poorly. It's really rather easy. It's the economy. When the last ISM Manufacturing came out, we saw the market begin its nose dive. The number came in at no growth. One point above contraction when it was suppose to be reasonably higher than that. That started the snowball down the hill. It got bigger once we saw The Empire State Report show contraction.
It continued further still with the most recent existing home sales report, which missed expectations by a whopping 7.5%. Add in a poor Philadelphia fed, which was down right scary showing massive contraction. A dash of a bad CPI (consumer prices) and jobless claims, and you have enough bad news to last quite some time. Look, it would be nice to fantasize that things aren't so bad, but the deterioration in our economy plus the bad news coming in from Europe, where economies are even worse than ours, the recipe is there for a bad market for a time to come.
One of things that used to drive me nuts and still does is when CNBC marches out their pals who say the same thing over and over. All is well and for you long term investors, there's nothing to worry about. Just stay the course. Stocks are undervalued and I just can't understand the pessimism. What!!?? These folks don't ever tell you anything is bad because they need to be self serving and don't give a darn about any of you reading this letter tonight. I think it's near criminal to march people on who will tell everyone to buy when things are looking bad for themselves. There are lots of folks who don't know better and get sucked in, yet there's no penalty for their acts. It makes me sick.
When I had my radio show years back I used to talk about this stuff all the time. Nothing ever changes it seems. Probably never will sadly. The S&P 500 opened the new year at 1257. It's now at 1123, a loss of 132 points, or 10.8%. 11% is a bad year for any market and it could get a lot worse over time. The market made its low recently at 1101. It looks like a full retest of this low is coming in time and likely a lot lower before it's all over. There will be some effort by the bulls to rally at 1101 to set a double bottom, but I think any rally off 1101 will go away, and a low on this leg down should be made in the 1050/1075 area, although that remains unclear for now.
The rally to follow won't last, although everyone will tell you it will. It is possible, if things set up right that we can go ever so slightly long, but maybe not at all. I will see. For now the market remains in bad shape both technically and fundamentally. It won't be getting better any time soon. When stocks like Apple Inc. (AAPL) have the MACD leading down price (rare for any stock), then you know things aren't good. Loads of breakdowns everywhere with massive gap downs to protect the bears. The year is bad thus far. It should get worse with rallies along the way. Be more than careful.
Enjoy life and play with a child this weekend if you get the chance.
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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