Market Holding On By A Thread
Jack Steiman | May 05, 2016 01:03AM ET
The Nasdaq has long ago broken down below all key, exponential moving averages. Bad action there, but this has been an S&P 500 bull market for the most part the last year plus. The Nasdaq has been performing poorly due to those higher beta, higher P/E stocks the big money wants nothing to do with. Priceline.com Incorporated (NASDAQ:PCLN) was down 100+ today on their earnings report. No mercy anywhere if you have higher P/E stocks. The big boys and girls want lower beta. They want lower P/E and they want lower risk. A healthy bull is a frothing bull. It's been gone for some time now. That said, the market has remained resilient as you know thanks to Ms Yellen, and her good tidings for the bulls in the form of low rates and lots of stimulus. Mr Draghi, over in Europe, has done his fair share of keeping things up as well. Will they be able to keep this up? I don't know, of course, and neither do any of you. It is the mystery of this market, and also what makes it so tough. Trying to playing on its own is tough, but when you add in interference from the fed, it makes it that much harder to figure out the puzzle.
Today was a day for the bears as they are nearing the break down level on the S&P 500, which, to be exact, is 2043, or where the fifty-day exponential moving average currently lives. The Nasdaq has long ago lost all of those key averages, but for the market to confirm a true trend change the S&P 500 needs to confirm the Nasdaq breakdown. Ever so close for the bears. We saw another gap down today followed by additional selling as the day went along. The S&P 500 getting within a couple of points of breaking down, but finding enough energy to barely hold off the bears. The damage today allowed the bears to break this down tomorrow with a gap if they have what it takes, which they usually don't, but just may this time. For the bulls, it would be great if they gap it down, but run it back up and close with a bottoming stick. That would at least hold off the bears for a little while longer. No guarantee for good, but would allow them to catch their breath. They could use a time out here as the selling has been very intense. Bottom line is today allowed the bears to see the light in terms of changing the short- to medium-term trend.
Markets are always interesting. If you've watched the financial stocks over the past many months you've been a guest in to the world of make believe and hope. We know that these stocks do well when interest rates are rising. If not rising just the perception that they will is more than enough. That happens when there's good economic news because that gets folks to believe fed Yellen will start a rate hike cycle, and if not a cycle, at least some further rate hikes. However, reality comes back when we see bad economic reports come in. We've had quite a few lately from the ISM Manufacturing Report to the GDP number to the ADP payrolls number today. Not good since this puts the fed on hold for further rate hikes. The overall perception is they won't be raising rates any time soon, and, thus, the banks are now struggling once again. Without the financial stocks participating in the up side it's hard to imagine the S&P 500 not losing key support at some point in the future. We shall see, but the market needs a few good reports, and they need them badly and they need them very soon. The financial stocks will be worth watching daily here.
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So support held at the end of the day. Good news for the moment, but we're at an inflection point here folks. If we do lose 2043 with force, we deal with the 200-day exponential moving average next at 2020. If we lose 2020 we see the 1900's very quickly in all likelihood. For this market to break out one would think the fed has done all she can, thus, it'll need something it's not getting. That would be real economic growth and a real pick up in earnings. They are on the decline, and in many cases it's quite severe. Keep an open mind. Let's see if the fed has any more tricks up her sleeves. Day to day with our sole focus being S&P 500 2043.
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