Interesting isn’t it! The ISM manufacturing Report came out today thirty minutes into the trading day. Anything above 50.0 shows expansion. Anything below 50.0 shows a recession is upon us, that the economy is in contraction. The market was expecting a pretty healthy number today with a reading near 54.0, far away from any contraction type number. Shock hit us all as the number came in at 49.7. Without question, it was a recessionary number. We have seen hints of this coming, as for consecutive months we’ve heard recession-type figures from the Empire State report, the Chicago PMI, and the Philly Fed. I guess the market got its total confirmation this morning. We had spent many months slowly, but surely, moving away from 50.0, and in one simple month it all came crashing in. So many folks had been warning about this in terms of their earnings reports.
Cisco Systems, Inc. (CSCO), and a whole troop of other big corporations, has said things hit a wall in April. They weren’t kidding. More than a wall it seems. A steel structure is more like it. The rapid fall off is really astounding. To have the economists be so wrong, even though we know they’re wrong most of the time, is really unusual. They have had their bad moments, but I guess they all got sucked into the tiny gains we were seeing monthly. They thought Fed Bernanke, and his pump machine, had taken care of the troubles that ail this country. It didn’t, and they blew it big time. The United States woke up into a bad dream today. It was much nicer when the lights were out and it was snoozing into whatever it wanted to believe. Reality is here. Now we see what the market wants to do.
Speaking of what the market wants to do. The initial shock hit hard. The S&P 500 fell an eleven handle off the top, and the Dow nearly one hundred points. I would have thought the damage to the market would have been far more severe, possibly even a temporary halt to trading that the sell orders would simply be too much to handle. I was wrong in that thinking. The market took the hit, and then rebounded as the day went along. It acted technically more upon the huge up stick from Friday rather than on the terrible economic news that hit. It acted as if the news was not bad at all. I guess what it ultimately acted upon was the Fed once again. So yes, the news is bad, and far worse than thought, but nothing another influx of massive cash won’t solve.
It won’t, but the market doesn’t care. It hasn’t worked before. It’s not working now and likely won’t in the future. The market wants to believe there’s a cure with our Fed somehow, and that’s why it held up so well today. I say it over and over and will repeat it one more time because it fits. Disneyland versus the real world and it seems Disneyland is winning the fight for now. We don’t know that it will forever, but it sure is right now. Price action talks, and thus, in the end, the world of fairy dust rules the roost.
1350 is gap support while 1425 is roughly the top of the wedge pattern. Below 1350 is the 50-day exponential moving average hovering at 1338. The big bad market continues to meander about, but with Friday’s candlestick so positive, and with today’s action so positive, it’s hard to argue that we won’t try at least 1380 on this move higher, if not all the way to the top of the wedge at 1425. Now we know the market is run day to day by news that hits from just about everywhere, from manufacturing reports in China to bailouts in the Eurozone to our own declining economic story. It is clear that for now the market has its head down some as it’s mostly ignoring bad news, while celebrating any good news in a very big way such as we had on Friday, even though longer-term it’s not such great news. You get the point. Anything considered positive is celebrated. Anything bad is ignored. We watch these levels closely.
Look folks, there’s nothing great here from a fundamental perspective. The news is pretty bad and getting worse. Maybe the market thinks this is the worst of things or maybe the market simply wants to tag the top of the open wedge or work its way higher in it, even if it never gets to the top before rolling over. The big money always wants to suck in as many imposters as possible, so you have to be very careful when playing in this type of environment. Some stocks continue to hold up very well such as Apple Inc. (AAPL), but many other stocks, especially those commodity stocks, still are more in bear-market mode, although at least they’re off their lows. This is a very nimble market for anyone playing it and won’t be getting easier any time soon. So please adjust accordingly.
Peace,
Jack
