Stock Market Bad News Bought Again...It's All About Rates....Nothing Else...

By: Jack_Steiman

After seven straight down days on the Nasdaq, the market was ready for a bit of a bounce. The Nasdaq has been underperforming, mostly due to Apple Inc. (AAPL), which has been sinking like a stone since they had their earnings report and Carl Ichan sold all of his shares. Many other Nasdaq stocks have participated in the bad earnings world as well, which has clearly contributed to the down turn in the Nasdaq versus the rest of the stock market. The S&P 500 is holding up far better than the Nasdaq as the big money continues to rotate into safety and away from froth, and higher P/E and beta stocks. Risk is not what they're after at this moment in time. Safety is the name of their game.

So they moved up a drop at the open, and then quickly turned red on the Nasdaq, before the market started moving higher again, and holding higher for the day. The bulls needed this today as the market was getting closer to the key level of support at 2040. More on that later. The bulls don't want to play with fire, meaning allowing this market to close within shouting distance of 2040, because it would only take one piece of the wrong news to turn the market more bearish, which is what happens if we do lose 2040 on a closing basis, especially with a little force behind it. The bulls needed this type of day, and fortunately the market cooperated. They're not out of the woods, yet, as all we are in is a trading range for the moment, but at least the bulls did what they normally do, and that's get the market to move up when it really needs a positive day of price action.

The catalyst for a decent day came at 10 AM ET today when the ISM Manufacturing Report came out and showed things are worsening once again. The report was supposed to come in at 51.5, but sadly came in at 50.8. Our economy continues to struggle mightily, but sadly the market loves bad news. The reason you all should know by now is that when things are awful the rate hike cycle gets pushed back further and further. That's all this market cares about. Push it back as long as possible. If you give folks an alternative to leave the market they will, but if you leave rates near zero, and let it be known that no cycle of rate hikes are on the way, then folks will be forced to remain in the market.

That perception, real or not, is allowing the market to hang in there when quite bluntly it has no right. The economy is weakening with earnings poorer than expected. This deadly combination would usually lead to a strong bear market, but not now. Not with the fed promising low rates for the foreseeable future. Again, that's all the market cares about. Markets only focus on earnings if necessary. If you give it a reason not to it will trend higher. The fed has given the excuse to turn away from the truth, and, thus, the market is behaving against the grain of truth as I have ever seen. Bulls don't mind. We all will one day in a way we won't want to, but hey, kick the can down the road. We'll deal with the truth later on.

For the time being there's really only two important levels to focus on for the big-picture stock market. S&P 500 2040 is where the fifty-day, exponential moving average lives, and 2116 is where we have the old highs. 2040 is so important, because with the Nasdaq already lagging and losing the 50's, you don't want to see the strongest area of the market lose it as well. That type of market weakness would send a message to the bears that they've taken control of things. It would be a change of trend technically that we should not see if things are really going to break out in the near- to medium-term, so again, watching S&P 500 2040 is really all we care about in terms of a trend change. All action above 2040 and below 2116 is merely noise, and maybe the market is simply trying to unwind elevated oscillators before trying higher once again with some force.

We are beginning to unwind some, but we have a lot to watch and should try to be very careful short-term not to over play. Take things slow, for now. No need to be over involved.

Peace,

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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