Market Correction/Consolidation Underway

George Brooks  |

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Thursday, May 5, 2011 9:23 am EDT

DJIA: 12,723.58
S&P 500: 1347.32
Nasdaq Comp.: 2828.23
Russell 2000: 832.90

Yesterday I said a stock market rally failure would comprise an early indication as to when a correction/consolidation will occur, referring to the inability of an upmove to hold its gain for the day and close to the day’s low.

While an afternoon rally failed to follow through, it didn’t sell off enough to qualify as a rally failure.

Even so, my uneasiness in recent weeks is now confirmed by the market’s behavior, and I wouldn’t be surprised if the BIG money was selling into Q1 earnings reports, as I warned. How else do you gewt BIG in this business, but to go contrary to the crowd

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Jobless Claims for the week ending April 30 were announced at 8:30 today and were up a unnerving 43,000, small wonder the Fed’s FOMC opted to maintain its low interest rate policy. However, it’s possible the number is more a result of distortion than economic weakness. For now, I am not aware of it, neither is the market – it’s heading lower.

Today: Down at the open.

What could temper the decline ? Tomorrow we get the Employment Situation report, which includes the Unemployment report. Nonfarm payrolls are expected to rise 185,000, anything better would help offset today’s jobless report – worse compound its negative impact.

Initial support is DJIA 12,600 (S&P500: 1335).

A correction is sharper and shorter as it responds to the need to digest recent gains or discount an event. A consolidation is less severe and can get the job done with a sideways trading range.

Show over ?

No !

But quick and nifty gains can vanish faster than walk-around money, so be warned.

This is a pre-presidential election year, the best of the four-year cycle, so I see a huge buying opportunity shaping up. What investors don’t need is to spend a big part of the rebound recouping paper losses.

FRB San Francisco President, John C. Williams, has some comforting words in this respect, noting a period of high inflation is “very unlikely,” and that he believes the commodity inflation we have seen in recent months will begin to ease at mid-year.

The ISM Non-Manufacturing index through April 11 dropped more than expected, suggesting the service sector of our economy is softening.

George Brooks

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