Easy Does It - Rally Failure Possible

George Brooks |

The economic news this week has mostly been bleak.  While Jobless Claims reported Thursday for the 2/1 week dropped 20,000, new hires as reported in this morning’s Employment Situation report were disturbing at 113,000 vs. a projected 185,000.

   In recent years, prior to the Fed announcing its first taper on December 18, 2013,   the market rallied on moderately bad news, since it assured the Street  the Fed would not be initiating a taper out of QE. Good news was followed by lower prices over the short-term.

   If the economy begins to slump further, the Street may return to its bone-headed “bad is good” mentality, expecting the Fed to pass on the next taper or two.

   If the Street has changed its focus and sees economic growth as a positive, then good news will be seen as just that – “good,”  and the Street will buy, but bad news seen as “bad,” and the Street will sell.

NO MORE DOWNSIDE RISK ?

  The market is up sharply after a big day Thursday. Is there any downside risk ?    The market is only off  some 6.3%% from its high, not the 20% crunch technicians say marks the difference between a bear market a bull.

   After the destruction we have seen in the last two weeks, is a 20% decline out of the question ?

   Not really.

   A 20% drop from the bull market high would take the DJIA down to 13,338 (S&P 500: 1,479) the general area of the two averages a year ago and  the upper end of 2012’s trading range.   I don’t see that happening at this point, but be aware that it can – no time for blinders.

 

TODAY:

   Yesterday’s rally carried the DJIA and S&P 500 a smidge beyond my projection with last minute  suggesting  higher prices, as confirmed by the rise in futures in pre-market trading.

  With the futures up prior to the open, one might believe the Street sees the poor employment report as simply weather related and not an indication of a softening economy, or it may believe it will delay a Fed taper out of QE.

   To early to tell.

  Expect a spike to DJIA 15,733 (S&P 500: 1,783). There is absolutely any room for a rally failure today. The rally must hold, or odds favor a test of Wednesday’s lows (DJIA:15,340; S&P 500:1,737)  

   For the moment, the Emerging Market chaos has subsided. More bad news on that front will trigger  renewed selling.

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Symbol Name Price Change % Volume
GMARW General Maritime Corp Wt Exp 05/17/2017 n/a n/a n/a 0

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