A horrible market environment exists when there are have two opposing forces battling it out, each with a great weapon on their side. The bulls have a very powerful weapon in the form of fear. The masses are very fearful here. Pessimism is ramping. The bears also have a strong weapon on their side. A weakening, global, economic environment. Two powerful market forces fighting it out every single day. Since sentiment is such a strong force all the time in the market it's going to be nearly impossible to break forcefully below 1867 on a closing basis. Not impossible, of course, but very difficult. It would take some really bad news to make that a reality. It could happen in the force of recession verified by a sub-50 ISM Manufacturing Report on October 1, but even then it won't be easy. Sentiment is a key driver for the stock market at extremes. With the bull-bear, and other sentiment readings, such as short interest at incredibly bullish levels, it's going to be very hard to kill the market off for good for the short-term. It was a mistake for me to take off the SPDR S&P 500 (NYSE:SPY) long, since it can probably be held for several months with gains. Not that it'll blast off, but it's likely to trend higher, even if we retest 1867, since pessimism is just too intense. I will look for entry into ETF's in the near future. I'm hoping we just don't blast out first.
It's going to take some time for the bulls to create enough optimism for the market to fall hard again and allow a bear market to take over. We probably need equal or likely new highs over the coming months, before the market can fall hard for a more prolonged period of time. Only when optimism rises enough along with massive negative long-term divergences can the market start a bear with force. That's quite a ways away, but it will happen. So, for now, the battle is on. You saw it in full force today. A powerful move up, followed by a very powerful move down, and then back up yet again. Neither side able to take control. The bulls were giving each other high fives early. The bears later on and in the end both were confused and tired, although the bulls won out a little bit. Nothing from nothing. Nothing the key word. The market giving us nothing, but again, I do expect higher in time. I doubt fundamentals can win out over sentiment in the short-term. That's a longer-term story.
The Fed could actually help this market blast out if they would come out and say the right thing here, even before their next meeting comes up. Tell the world they're going to raise rates slowly and in a dovish fashion starting next month. Take away the uncertainty and show some confidence she truly doesn't have, but show it anyway. In other words, lie. It goes on all the time in this game, anyway, so go for it, and let everyone know things are fine, even though they're not. Raise a quarter. I mean come on, how much damage can a quarter percent do rates when it's from 0 to .25? None at all so do it and take away the uncertainty and allow the pessimism to have a catalyst for the next rise higher in the averages. The pessimism is so powerful here that it really wouldn't take, but the slightest of good news to get this market rocking back up, no matter how bad things truly are around the world.
The bulls just need to get the NASDAQ, the froth leader, to lead yet again. It has six points of double resistance it needs to clear to get the market rocking higher. 4894 is strong gap resistance, with 4900 being the 50-day exponential moving average, meaning a decent close above 4900 sets the market in motion higher. The shorts would be forced to cover, and the shorts are out there in a big way. We got to 4881 today, only to see that level fail badly, but at least we got close. Again, one statement from the Fed will get the job done. The news could also come from overseas in the form of China with a "surprise" report on manufacturing, if you catch my drift. You just never know where the good news will come from when the market needs it. So stay open and wait for it. It's probably not far away, since sentiment likely just won't let the market fall too much, although it definitely can fall some.
The Nasdaq was weakest today as those grossly frothed out biotech stocks took a pasting. That caused the Nasdaq to fall half a percent shy of taking out critical resistance as I mentioned from 4894 to 4900. A strong close over 4900 will get the job done, but the nasty reversal during the day will make things tougher short-term simply because a lot of technical damage was done to the leading area of froth, the biotech stocks. Huge, 50-day back-test failures with long down candle sticks. It'll take time to recover the damage done. Big sellers hit these stocks in a very big way, so they won't lead very much for a while. Patience is the name of this boring game which has developed sadly. Nothing is easy for either side, but neither side is giving in easily to the other. The bears attacked where they needed to today and succeeded in holding the Nasdaq off.
So patience, with the best way to play being to buy weakness and avoid froth stocks. Day to day folks. Sorry. It is what it is, but remember, pessimism won't likely allow for anything too severe, although nothing is truly safe for now.