Jack's Wrap - Winning Week...Losing Economy...


Saturday July 9th 2011
Winning Week...Losing Economy...
by Jack Steiman www.SwingTradeOnline.com

The stock market enjoyed a winning week to be sure, although the economy suffered a knockout on the losing side. The Jobs Report, which came out today, was supposed to show job growth of 125,000 jobs. The number came in at only 18,000. To make matters worse, and to show you how tough it is to keep a job at a good salary, wages fell. They were supposed to rise 0.2%, but actually fell. This is not the sign of a healthy economy, and many are suffering. I'm sure all of you out there know of someone, or many, who are in dire trouble these days. It is really sad and it doesn't seem to be getting any better. Bad times in our economy for sure. However, Wall Street and Main Street often live in two separate worlds. One can be acting very poorly, while the other is doing very well.

The news today took the market by surprise. The futures tumbled on the news in a big way allowing for a huge gap down. We were down nearly 150 points on the Dow at the lows. It seemed to be spiraling down when the bull market took over. It just wouldn't allow for any major losses despite what took place in the real world. Fantasy land went to work, and when the day was over, we saw minor losses across the board with the Dow down only 62 points, the S&P 500 down 9 points, and the Nasdaq down 12 points. A nothing from nothing day that started the process of unwinding overbought daily and short-term 60-minute charts. The unwinding wasn't much to talk about, but some did take place. Bottom line was the bears just couldn't keep the momentum that began right after the Jobs Report came in. They pretty much gave up by days end. The bulls scored a victory even though the real world took one on the chin.  

When studying the charts you can see how many stocks are going to be setting up in strong bases while things unwind from overbought. Very bullish looking set-ups as the MACD's really ran up powerfully on this rally. As soon as they pull in a bit they will be ready for more upside action. When markets start to fall from overbought you want to keep track of the best looking bases so you can buy these plays once they set back up off their handles. Handle set-upS are impossible to time in terms of length, so you simply buy them when they have unwound enough to be bought, and you deal with the whipsaw action until those handles rock out. You can't get too cute with them and time it just right, but you can buy them once they have calmed down a bit off the up move just completed.

The bases are setting up all over the market and that's good to see. Even the financials, which were awful today, don't look all that bad and that's a real change of character for this market. They have been laggards, and really, still are, but the set-up technically isn't bad at all. The semis don't look too bad. Stocks in that sector look much better than they have in quite some time. Again, the best news is the fact that so many set-ups are going to take place throughout the entire stock market. Some are real close already.  

The questions now becomes what took place today and why? Why didn't the market just roll and play dead like the economy seems to? It is an interesting time in this market because the market is saying what happened today was just a temporary blip on the radar. If the market felt what happened today was sustainable it would have tanked out much more powerfully and stayed down all day. No fight back off the lows. The big money seems to be saying that what happened in the economy will soon be reversed back up with more job creation in the months ahead. Markets don't care what just happened. It only cares about the future and for reason, which most can't figure out, it seems to like what it sees for the future.

Who are we to argue! We simply play the way the action tells us to. The market for now feels the worst is about over, but you also have to wonder if the market is getting it right. I have no idea what could possibly make things better as no one has been able to figure out any type of solution. If bad news from different economic reports keep coming in over the next few weeks and months you have to wonder how long things will hold up, but for now, the market doesn't think the future looks all that bad. Time will tell.  

When markets pull back from overbought, if they're truly healthy, then the 50-day or 20-day exponential moving averages should stop the selling. Those levels are as follows. On the Nasdaq the levels are 2759 and 2750. Very close together, which is good for the bulls as the two key moving averages are stronger when close together. On the S&P 500 the key levels are 1313 and 1311. Again, very close together and that makes the job for the bears very difficult. No guarantee we go down that low at all, but if we do, it'll be wonderful support for this market. If we end up losing those levels we have to go back on the defensive again, but for now, buying weakness is the way to go. Nothing aggressive until we calm down some, but exposure is fine with adding on weakness the plan.

Peace,

Jack


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