Broken?

It is a bit of an odd feeling witnessing the market taken a 180 degree turn (-10% SPX off highs) in just over a week,  breaking below the recent low as of the close today.  On the other hand, it's hardly a shock...last week, .."It is not an exodus out of stocks, but it doesn’t mean it won’t become this if we don’t get a reprieve very soon".  In the last few seesions, we've seen just this as individual equities play catch up to the previous week's negative ETF trade.  Whether this is appropriate reaction or not, we have to give respect to the collective action of market participants and accept what is happening on what is generally supposed to be a ‘quiet’ period before a Q end / holiday trading.

Fear can be a powerful thing!   The fact that the market participants can't wait till for this earning season to kick off to vote their action is a very distressful sign.    The recent batch of soft Eco. Data along with the persistent worry of Euro debt and Chinese Economy are enough of catalysts to finally give people a reason to give up.    If there was a slight hope that yesterday's close would be defended, then today's last hour action simply confirmed that our recent low is broken and perhaps a fresh leg down is on the way.   We have an important NFP report this Friday, but all signs point to the conclusion that market does not care about it one way or the other.    The NFP report will be bad, and there's really no need to anticipate anything positive from it following ADP# today..    This is the kind of message that's circulating among people's mind out there and we have to go with that.

So, lets get a few scenario’s going here!   The only positive thing for a long at this point is that market has been oversold since a week and half ago.   There may be some relief bounce here and there, but it looks as though we can't avoid the inevitable of going down further.   This brings up a point of where the reasonable support level is for this market.    Right now, we are eyeing 1020 as a short term support and 1000 as a psychological support.    The ultimate support level may be at 980-950 assuming there's no big fundamental change in the Economic recovery.    Yes, we are still talking about recovery at this point until we have a few months of data suggesting otherwise.    There are also events out there that can cripple the Economic recovery including the further erosion of European debt and a real and dramatic slow down of Chinese Economy.    Both of these issues are highly on people's agenda these days and this is something we have to closely monitor.    The U.S. corporate earning season is only two weeks away and this can be a positive ‘only imaginable' catalyst for traders as we recently noted at this point.    Hopefully price levels for many plays are so attractive by that point that an encouraging report from a couple of key players can spark some push in our equity sector.

Unfortunately, this market can be so emotional these days and we can not control how much further it can move down off fear.    All of us have to be very cautious playing this tape even if it's just a flip.   We’d probably be more inclined to trade ETF’s until possible new earnings stories come up.   We’ll definitely keep staying away from the commodity and financials at this point and technology stocks have a lot to prove from this earning season.   Many have said the wonderful tech earnings have peaked last quarter and this is something we have to verify with our own eyes. (MU), Micron didn’t help just the other day.

Bottom line, things do seem pretty rocky out there and we can't rule out some dramatic action coming the market’s way.   However, as always, we still have to keep our cool because like we have said before, this is merely one of the stage in a long marathon we are dealing here, not a sprint.  One possibilty now is that this markdown liquidation at Q/mth end is very reminiscent of things we've seen before in this market.   It has been followed by an uplift into a new month.  Now, take this with a grain of salt as this previously has happened without the global turmoil we have now.   Still, it's a possibility into earnings season as sentiment must be near previous reversal bottom lows.