Today’s
NYSE volume was higher than Friday and we went down another 1% so we did not
confirm a successful test of the prior low.
This analysis of lower lows works best on extreme lows, when the volume
drops are also extreme, say in the neighborhood of 50%. The news has trumped the lower-low technical analysis
for the time being.
At
this point it looks like we will test the 16 March level of 1257. You may remember I predicted we would test
that level months ago, only to give up on that call when we made new highs at
the end of April. So it’s Deja-vu all
over again.
The
economy has clearly slowed and is being called a “rough patch” by many of the
talking heads on CNBC.
Discussing the bad employment numbers, Ron
Blackwell, Chief Economist of the AFL-CIO said, “No one knows on one month’s
data…but this one is a real sign of fragility…this is what economic stagnation
feels like.”
John
Hussman, PhD, wrote today that he does not think the data necessarily means we
will move into recession. “In recent
weeks, and particularly in last week's ISM, employment claims and unemployment
reports, we've observed a substantial weakening in measures of economic growth.
At present, the evidence of economic deterioration is not severe - as I noted
in 2000, 2007 and last summer, recession evidence is best obtained from a
syndrome of conditions, including the behavior of the yield curve, credit
spreads, stock prices, production, and employment growth. While all of these
components have weakened, they have not deteriorated to the extent that has
(always) accompanied the onset of recessions.” - John P. Hussman, Ph.D., 6 June 2011 Weekly Market Comment, http://www.hussmanfunds.com, used with permission.
…but
that doesn’t mean that the stock market won’t go down anyway. The Navigate the Stock Market analysis moved
to SELL Friday, and was SELL again today.
The
Sell is based on 2-indicators (1) a statistic I keep on volume and price. When the S&P drops a lot on high volume,
it can generate a Sell in the Price/Volume indicator. This is really a panic
indicator and triggers when something big happens – in this case – really bad
employment numbers. (2) Our volume indicator also went negative and that is a variant
of “on balance volume”. A search of that
term will give you an idea of that indicator.
Friday
I sold to 30% invested in Stock which is a defensive position.
I
will be watching the 1257 support level.
We closed at 1286 today. The next
critical support level is only about 2% lower (1257). If we break significantly below 1257 (say a
couple %) we could see 1210 (a 50% retracement) or 1180 where there is strong
support.
