So yesterday we had a very bad Ism manufacturing report. Below 50.0 for the first time in quite some time showing economic contraction. Not a good thing since this now puts the fed in a predicament. Will she or won't she is now in question regarding that first rate hike to come this month when all the boys and girls gather for their six week get together. It was a slam dunk that the market would get what it was craving in a 25 bp rate hike. No longer is that a slam dunk based on the words of the Chicago fed yesterday. He said he'd prefer to see strength first and thus maybe we're not quite ready to raise those rates. The market rallied on that news yesterday. Strange reaction. Today it fell. All of this due mostly to those awful monthly charts and the not so great daily charts in terms of their Macd's. While the market is in whipsaw mode we can't get bearish on it at all until the Sp loses 2020 on a closing basis with some force behind that move. The topping process could still see a new high before the party officially ends. No guarantee but that's still out there. It's possible that all we need is some further weakness to reset those not so good looking oscillators. If that does occur you then search for a bottoming stick that offers up greater risk reward for the long side and remember that the long side is what you want to look at until we lose 2020 on a closing basis. If you want to short against the prevailing trend then that's your call but I wouldn't short until we lose 2020 and then had a failed back test. So yesterday we were up and today we were down. The whipsaw is still alive and kicking. The hope of a new high is still there. Today doesn't destroy the up trend at all. It's just more difficult to get sustainable action one way or the other. Keep it light. Buy weakness if possible. When today was all said and done we did what one would have expected us to do yesterday. Nothing from nothing overall.
Here's what is clear. When a stock market is in full bull mode you don't see stocks crashing out on a hint of bad news or a downgrade. Stocks like Cmi a few days ago on a simple downgrade fell nearly 8%. We saw that in many areas today such as trucking and other transportation areas. In a healthy market, if a stock gets a downgrade it falls 1-2% maximum and then stabilizes by the end of the second day. Now stocks are falling 5% and in many cases, far more than that in a single day. A change of trend. Bad news is hitting stocks in a way we haven't seen for many years. The key is its how consistent it is. Day after day we get these downgrades and day after day we see the same reaction. Fewer and fewer stocks are carrying the market higher when it rallies as more and more stocks and more and more sectors are breaking down. Again, little signs that over time may be telling a much bigger story. We shall see folks. For now don't forget that until 2020 goes away on the Sp we are still in a confirmed up trend. As ragged as it may be it's still an up trend.
Next up for the fed to have to deal with is the jobs report this Friday. The numbers for all of these economic reports are all over the place month to month so who knows what we'll get for this important report but manufacturing took a dive this past month so we better see big gains in the services area in order to get the number the market wants to see to give it confidence the fed will still raise rates. If the fed doesn't raise rates or even if the market thinks they may not, the short term action could turn ugly. The market wants to see fed confidence. If they take another month off from hiking the market will know that the fed knows things are not where they need to be and that would be yet another excuse for more market headaches. Tomorrow will be interesting since we closed right near the 20 day exponential moving average on the Sp currently at 2076. We basically engulfed yesterday's nice candle thus there is risk short term. Keep it light for now.
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Peace,
Jack Steiman
Robert New
