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Is The Stock Market Correction Over?

  • Written by Syndicated Publisher No Comments Comments
    February 10, 2014

    In late December our short-term technical indicators called for another short-term correction. The downside targets were the 50-day m.a., the more likely target of the trendline resistance that had provided support in the previous pullbacks since last October, and the 200-day moving average that the S&P failed to visit last year for the first time in at least 15 years.

    The correction has taken place.

    As expected the 50-day m.a. did not hold. The trendline resistance (the green Line) then failed to hold. But the 200-day m.a. was not reached.

    But in last Tuesday’s and Thursday’s blogs I said the market had become oversold enough short-term beneath the 50-day m.a. that at least a short-term bounce off the oversold condition was likely.

    And that has now been underway over the last two days.

    It has returned the S&P 500 to the trendline and almost to its 30-day m.a.

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    It likewise returned the indexes that had not corrected enough to retest or break below their previous trendline support, back up toward their 50-day moving averages.

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    So is the correction over?

    It’s possible but unlikely.

    The catalyst for the rally seemed to be the ADP jobs report on Wednesday and the Labor Department’s employment report yesterday.

    The potential problem for the rally is the history of the Labor Department’s employment reports. As subscribers and long-time readers of this blog know, we refer to the Labor Department’s monthly report as ‘The Big One’ because they so often cause a one-to three day triple-digit move by the Dow in one direction or the other, and the other side of the history is that the move is usually reversed over subsequent days, and the market returns to whatever was its focus prior to the report.

    In this case, that prior focus was on the slowing U.S. economy, renewed concerns about a hard landing in China, the potential effect of the Fed’s tapering on emerging markets, and so on. The dismal jobs reports did not alleviate any of those situations, in fact exacerbated them.

    Meanwhile, there is the possibility that the 50-day m.a. may now be overhead resistance.

    So we shall see.

    The similar situation in European markets, which rallied the last two days along with the U.S. market, is also interesting.

    For example:

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    Other Voices:

    Not many ready to stick their necks out until more evidence is available?

    Kopin Tan, Barron’s: “On one hand,  the recent correction looks like a pause to rest, reflect, and repent after 2013′s intoxicating excesses. . . . . On the other hand, stocks could overcome the Fed’s December taper announcement to rally further, in part because the global economy was revving up at that time. Since then, however, noisy headlines about quieter factories in China, teetering currencies from Argentina to Turkey, and the wilting Nikkei raise worries about emerging markets’ contagious blight. Domestically, the staggering drop of a U.S. manufacturing index tracking new orders — from 64.4 to 51.2 in January, the steepest since 1980 — further fans fears about stalled growth. Suddenly, reduced Fed support seems like one cross too many to bear.”

    Justin Lahart, Wall Street Journal: “A confusing jobs picture is making a muddle of the Federal Reserve’s communication efforts. The U.S. added just 113,000 jobs last month, the Labor Department reported Friday, falling well short of expectations. Worse, the weakness makes it much harder to treat December’s disappointing report as a one-time event. It appears that the job market really has slowed. That doesn’t mean it is a sure thing. The Labor Department also reported that the unemployment rate, which is based on a separate survey of households, fell to 6.6% from 6.7% in December, marking its lowest level since October 2008.”

    Michael Hartnett, chief investment strategist, BofA Merrill Lynch: “The big capitulation out of stocks and into U.S. Treasuries last week represents the end of the Jan/Feb correction. . . . . but our trading rules are not yet flashing a strong buy.”

    Harm Bandholz, chief economist, UNI Credit: “On the one hand the ongoing decline in the unemployment rate – which is now only 0.1 percentage point above the threshold in the Fed’s forward guidance – means that an adjustment of the forward guidance is becoming more urgent. On the other hand the second lackluster payroll gain in a row at least questions whether the Fed will continue to moderate its asset purchases at its upcoming meeting.”

    To read my weekend newspaper column click here:   The Economic Outlook Is About More Than Just Jobs

    Images: Flickr (licence attribution)

    About The Author – Sy Harding, Street Smart Report

    Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!

    It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.

    It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.

    In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.

    There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more. 

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