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Stock Market Tiring Of Bailouts....Market Reversal Down.....

Stock-Markets / Stock Markets 2012 Jun 12, 2012 - 02:58 AM GMT

By: Jack_Steiman


Best Financial Markets Analysis ArticleThe market was waiting over the weekend to see what would come out of the Euro-zone with regards to the potential financial meltdown in Spain. Would the world come to the rescue or let Spain sink in to the abyss was the real question. The market got its answer when the world came to the rescue and gave them all they would need and more. It's ridiculous bailout that displayed the depth of desperation out there. The market, naturally, loved it. Or did it?!!

In the past the market futures would have blasted up and kept going. On the news, the futures did melt up. The Dow was up a drop over 200 points. That's where the similarities ended. The markets around the world are tiring of silly and useless bailouts. Instead of the next explosion up, we saw the market start to give up its gains immediately after the open of trading began. Traders running for the exits as big money did not come in and support the global stupidity with regards to adding debt on top of more debt. It seems as if the message is that we're all tiring of nonsense. The world seems to recognize more and more that bailouts are actually not a good solution. How about that, intelligence actually taking hold? Who'd have thought that possible?

The action today was a total change of trend versus the past, with regards to free money. Maybe it's not so free after all. Maybe after eleven failed bailouts by Japan, plus two failed QE-program bailouts here, the world is sniffing a bad act. Maybe it's time for a new play. Maybe it's time to let things work themselves out naturally without interference. That will never happen, of course, but that seems to be the message the markets are starting to send. I have warned that this process would likely take place over time. When something hasn't worked, but it seems like the only thing to do, markets initially celebrate the efforts, and the very short-term solution it creates. After a while, the act gets old. We saw that today.

The world has problems. Some are severe. Some will have terrible outcomes. However, sometimes there is no cure. Sometimes the patient needs to stay sick. Let it all work itself out naturally. At least we're starting to see the markets reject the constant bailouts. They won't end right away. Mr. Bernanke, and others, will do more, but maybe after a while even they'll get the idea that there is no cure for what ails us in the moment, that some severe pain will be the way, whether we like it or not. The market spoke on the bailout issues today. It said it's starting to think maybe it's not such a good idea after all.

The fact that the market reversed down hard after the bailout news isn't necessarily the end of the stock market. It doesn't mean we now have to crash out. There are some underlying factors that could prevent this from happening from the daily index chart oscillators to extreme bearishness creeping into the collective mind set of the stock market. While things don't look good technically after today's reversal, the oscillators are still more on the lower end of the spectrum with good MACD crosses still in effect on the major index daily charts. We also have a strong gap just below current prices, but more on that later in this report.

We don't know from day to day what the news is going to be. We have an important election coming up this weekend in Greece. If the wrong party gets in, the party that wants out of the Euro-zone, that won't be good news for the market. However, if the other party holds on, that will be more market friendly. Every day we seem to deal with important news from overseas. It gets old, but we're really all about Europe each morning. The news, overall, obviously hasn't been good, thus, the down trend we're in, but yet, with all the horrible news we've been dealing with, things aren't really all that bad. It could, and even should, be much worse, but the hope of the Fed rescuing us all has kept the markets from crashing out.

It seems only when the world thinks the Fed becomes useless will it fall very hard. Hope is an amazing thing. If you think about all the world has had to deal with these past few years, it's more than a miracle that the market is trading at the levels we're at today. Surely you wouldn't be shocked with all we've dealt with if the Dow was many thousands of points lower. As time moves on, however, it does seem the market is losing faith in a cure and what the Fed and all these bailouts can do bigger picture to solve all of our headaches.

So what levels are we watching? The long-term up-trend line now on the weekly charts off the March 2009 lows is now at 1260 on the S&P 500. The 50-day exponential moving average is at 1340, an eighty point trading range which makes things very difficult. Lots of head fakes within such a large range. We are right in the middle of that range at 1308. No one in true control, but you have to say the bulls had their short early on today with the bailout news. We were right at 1340 last night on the news. It just wasn't meant to be.

1300 is great gap support, so we need to watch how that gets handled. A gap down below it would be the best case scenario for the bears as taking out big gap up levels without a gap below it is very tough to do, indeed. If we don't gap down below 1300 tomorrow, today's failure probably won't mean much other than the whipsaw continues in the 1260 to1340 range. An important day and opening tomorrow. If we do lose 1300 with force, we are likely to test that key up-trend line at 1260. If we lose 1260, it's lights out for the bulls. End of story. In between is all noise, no matter what's taking place in the market.

As bad as today was, and it was bad folks, it's nothing if the bears can't step on the necks of the bulls and take this below 1260 in time. There's lots to learn along the way, with mostly cash the way to go, if not all cash much of the time.



Jack Steiman is author of ( ). Former columnist for, 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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© 2012

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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