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Jack's Wrap - ISM On Deck....Bernanke Crushes The Commodity World....Index Engulfing Sticks.... RSS


Wednesday February 29th 2012
ISM On Deck....Bernanke Crushes The Commodity World....Index Engulfing Sticks....
by Jack Steiman www.SwingTradeOnline.com

In my opinion, the ISM Manufacturing Report is the most important report we learn about on the first trading day of each month. It tells us whether the economy is improving, or whether things are not going along all that well. Since manufacturing is the life blood of this country, it is imperative that we follow along with how it's doing each month. If things start to drift lower, that’s a red flag that the recovery program that's under way may not really be under way at all. The report comes out thirty minutes into the trading session. If the number is bad, that will be the second negative report in three days. There was a very poor durable goods number Tuesday morning. It was reversed today when news came out that there had been a better than expected Chicago purchasing managers report.

It will be interesting to see what tomorrow’s report shows. With this market so overbought for so long, the report better be spectacular. If it's below expectations, some real selling may ensue. However, it’s probably better if there’s some selling sooner than later, but we need a catalyst, and that catalyst could easily be the ISM Manufacturing Report. It will come out at 10 AM ET, so you may want to be watching for it. 54.5 is expected. If the report is good, maybe the market can try to forcefully clear 1370, and head for 1400. But there's real risk here, so it’s important to know what that number is on the report. It should be a real market mover.

Let's take a look at the power of fed. Mr. Bernanke. It seems he can move what he wants to move whenever he feels like it. Today, it appeared as though he may have an agenda, and is unhappy about the way inflation is ramping up due to his massive influx of cash. By not offering up any QE3 program, which the masses are waiting for, it looks like he may have put an end to it. This destroyed the prices of gold, silver, and just about everything related to the commodity world. It seems he wanted to stop inflation to some extent, and got his wish by simply not talking about QE3. It leaves one wondering whether what he says can be trusted. Stay away more from frothy commodity trades as well for the foreseeable future. Sad reality, but it is what it is.

Looking at the technical aspects to this market, it looks like we've probably topped out, however, that may depend on the ISM Report to some degree. If it's bad, the market should get smoked pretty hard. But what happens if it looks pretty good? Will the market still sell? Most likely, yes, but because the market’s in an up trend, it’s important to see the ISM Report before getting into more, if not all, cash.

There were engulfing candlesticks on the Nasdaq, S&P 500, and the Dow. After a long up trend, that's not what a bull wants to see, because it often suggests the bears have now taken over for the short-term. Tomorrow will be the tell-all on that, but for the short term, it's a giant red flag. Not only were there engulfing sticks on the major index charts, but also on an average of 15% more volume than normal. Ouch! This combination of price and volume suggests, again, that we've probably seen the top for a while. Again, tomorrow should tell more on that definitively. Stay tuned. Big day tomorrow, for sure, technically speaking.

Let's look at other technicals related to today's action. We saw MACD crosses along with stochastic crosses on all the critical index daily charts. They also did so from very high levels. Get the idea here, folks? The odds are increasing that we fall some soon. About 3-5% would be my guess. A back test of 2875 would be about perfect on the Nasdaq. We reached 3000 on the Nasdaq today along with 13,000 on the Dow. The bulls wanted those levels, but now the market looks ready to say, “I'll see you all again at lower prices.” Never good to get bearish crosses on the stochastic's and MACD. Now the crosses are just happening, thus, it is possible for them to recover.

It's not etched in stone that these index charts are guaranteed their stronger pullback from here. It's just more likely is all I'm suggesting. More red flags than we've seen in quite some time. If tomorrow is down decently, those crosses will extend enough to almost guarantee the top is in for a while to come. That would be great, bigger picture, as it would fully unwind to a much deeper level the overbought condition we've been dealing with for quite some time. The market could really use a strong pause in the action to catch its breath. 1344 is strong support down to 1315. I think 1315 level should catch the selling. But we shall see.

The market remains healthy overall, but stocks, such as SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) along with the ETF on silver, ProShares Ultra Silver (AGQ), look very ripe for deeper selling. Welcome it if it comes. It'll raise the VIX. It'll allow for more volatility, which is badly needed, and it'll offer up much better buying opportunities in the near future.

Peace,

Jack

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Jack Steiman Former columnist for TheStreet.com, Jack Steiman is renowned for calling major shifts in the market, including the market top in October 2007. More ...
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