Jack's Wrap - Employment Light...Corrective Move Continues.....

Monday April 9th 2012
Employment Light...Corrective Move Continues.....
by Jack Steiman www.SwingTradeOnline.com

Markets, when they need to sell, look for a reason to start the sell-off. The market will often simply make up some type of excuse to get moving lower. Although, there are times when the market actually has the right news come out. That news occurred on Friday of last week. The Jobs Report came out much, much lighter than expectations, and the selling started. The futures ripped lower after the report, and held lower all weekend, allowing for a large gap down as the market opened for trading today. The market pretty much traded sideways the rest of the day as things got oversold on the short-term 60-minute charts. Once that unwound back up a bit intra-personal day, the selling started back up again very late in the session. The indexes were down roughly one percent for the day. A poor advance-decline line solidified the selling for the bears. The market has begun the process of forming a deeper-base move off the recent 1422 top on the S&P 500. Unfortunately, for the very impatient, this is going to be a longer-term situation. It's not going to be cured in just a few weeks. We are in week two, and likely will be in week 10, and more further down the road.

There may be lots of up days and lots of down days as the market still works on first finding a bottom to work off. My guess is that will be near SPX 1340, in time, but it could be a little lower than that. It won't be straight down to 1340 either. A likely bounce off the 1369/1370 area could be expected. So be prepared for what's in store for the short- and medium-term. We simply got too overbought for too long, and now it's time to pay back a bit with a flat-to-down market for several weeks, to likely months. It is necessary and healthy. Don't be despondent over it. Welcome it as it takes the excessive optimism at hand and turns it into pessimism. I'm sure the one week of this has already worked on some of you from a negative perspective. Just recognize what's at play and you'll have an easier time coping with the market’s somewhat inability to have sustained upside action.

Sentiment is definitely worth taking a few minutes to discuss. Think about how rapidly the bull-bear spread went up over the past two weeks. It went from a more neutral, to slightly bearish 17%, to now over 31%. Any time you're over 30% and approaching the magic number of 35%, and you have overbought weekly charts on the NDX and PowerShares QQQ Trust, Series 1 (QQQ), the market is close at hand to some form of selling, and thus, it should come as no shock to anyone that we're in the pause phase of this bull market. It never takes a long time to sour folks on things. Fear is a far greater emotion than greed. It's easy to be in the greed phase of a market. No emotional work required.

However, it does take a lot of work when you're in fear. You act in fear. You get negative real easily when things aren't great. It's understandable. When markets stop going higher all the time, folks think the upside is over forever as they've lived through too many bear markets to think otherwise. The fear of getting slaughtered, yet again, is too overwhelming emotionally, and thus, they react in a way that unwinds the sentiment rather quickly. If the market does what I expect it to over the next several weeks and months, I would think the bull-bear spread will rapidly be heading towards the teens again, or possibly even lower. It picks up momentum with every passing week, so it shouldn't take too long to get the problem of too much optimism under control. Patience a real virtue here.

Fed Bernanke is worth speaking about here. He has what I would consider the worst job on the planet. I think he has to see what's going on globally, and say to himself, “Ollie, how do I get out of this one.” That's for all of you old enough to remember Laurel and Hardy. He recognizes that Europe is in some very deep trouble. They are facing financial disaster throughout the Eurozone. He knows this, eventually, has to spill over to our economy as imports and exports will be severely affected negatively. That will bring us closer to recessionary levels as time moves along. He also knows that if our stock market goes back to a bear, the economy will take a severe hit, and recession will be inevitable. However, if he pumps in too many dollars to keep the markets happy, he faces hyper-inflation. That will kill the economy as well.

The box is where he lives as he's stuck in a huge one. I don't envy his problems. There’s no real solution, because there simply isn't one, and he's not likely to find one either. He hints as different things at different times, depending on what's the biggest headache of the moment. Hyper-inflation is his problem du jour. He's trying to knock down the commodity stocks in a way that won't destroy the stock market. Not an easy dance. I hope he took lessons. So he moves along day to day watching the slowdown in China, and even worse, in Europe, and prays someone somewhere figures out a real solution to what ails the global economies. At some point in time, it seems inevitable that the whole ship goes bye-bye. He will have no way to help our country any further when the European problems, along with those in Asia, intensify out of control. He'll simply have to let our country take the hit. It's coming in time, but I don't believe we're there yet. Still some time to go before we meet the truth in time.

We closed at S&P 500 1382. We are only one percent away from the confluence of support at 1369/1370, which is the 50-day exponential moving average and the breakout level from weeks back. It won't be easy taking out this level of support, but in time, I think, the 1340 area will be tested. 1424 is massive resistance, and my guess is, we won't be seeing this level again anytime soon. It won't be a straight move down, but upside won't be easy. There will be lots of moves in both directions. Trend lower for now. See this as an opportunity before we get the big bear move in time. That's still a ways away. Go very slow and easy for the time being. Use positive divergence set-ups on the 60-minute charts to enter new plays long, and if you like, use back tests over time to short a bit. But remember that the trend is still higher overall. It won't be short-term, but bigger picture, that's the reality of things.

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