Dog Day In The Market

 It doesn't get much uglier than this. After a big expected up move following the announcement last night of a "deal" in the ongoing budget debacle, the market very quickly reversed as it appeared, at leasst to me, that this was going to be a sell the news event. Half an hour into the session, the unbelievably lousy ISM numbers certainly greased the skids, but the market was already on the ropes when that was released. Thesimple 200dma is coming into play, and with a late semi-rally the market managed to get barely back above it. We have now slid 8 days in a row, have hit a potential support level, and may be due for a bounce, but the volume on the way down is so far hinting that any bounce will be pretty weak. The ball is now in the bears' court, but for the last 2 years they have been unable to capitalize on any opportunities and every drop has been a gift to the bulls. 

The Nasdaq was looking for support at the simple 50dma, which failed to materialize. It is still above the 200 but getting uncomfortably close. The magnitude of today's reversal is staggering and must be psychologically devastating to those expecting a big rally as a result of the budget deal.

The Dow went right up to the 50dma, reversed, and went right down to the 200dma, reversed again, and finished almost even for the day. If anything, that may be an indication of a bounce coming tomorrow, but I won;t be counting on it. 

The Russell 2000 is also trying to find support at the 200dma (IWM is a few cents below it), and so far it looks like it is holding, but the volume pattern here isn't very good. If it holds here we need to see how strong the bounce is, if not, it's lights out, this could really plummet.

Last year at this time we were in almost the same position we are in now, although a few hundred points lower. The market was range bound, the economy was deteriorating, and we appeared to be heading into a double dip recession. The Fed gave the market the equivalent of pain killers (QE2) and sent it back on the field. It worked, for a while, but who knows the long term damage that was done. With an election just a little over a year away, don;t be surprised if they try it again. This time the damage might be irreversible.

I will have the new highs update shortly.