Market Alert - The Close

It was a week that returned to old themes, one being China. Another is Fed action in times of market stress. Not market crisis, but simple market stress. The economy is, after all, recovering right? It would be very untoward just ahead of a presidential election if stocks rolled over and tumbled, belying the purported economic prosperity that everyone talks about but very few feel. Both were at work during the week, and the market action suggests they are not done.

On Thursday China reported exports fell 10%. Stocks fell hard, but just as several indices breached the early September lows hit on that sharp plunge, they reversed. No positive close but they went a long way in cutting the losses.

Friday there was more Chinese economic news but this time it was viewed as a positive. Its PPI rose (0.1% versus -0.3% expected) for the first time since March 2012 and helped bolster stocks and continue the Thursday rebound. September retail sales snapped back to 0.6% from -0.2% in August, adding to the upside impetus.

Stocks started higher but unfortunately hit their high at 10:20ET. That put NASDAQ at its 50 day SMA, SP500, RUTX and DJ30 at their 50 day EMA, and SOX and SP400 at their 10 day EMA. In short, they bounced, but bounced right into resistance. And, resistance held. A sharp drop to midday ensued, and then the indices range traded into the close.

SP500 0.43, 0.02%
NASDAQ 0.83, 0.02%
DJ30 39.44, 0.22%
SP400 0.01%
RUTX -0.27%
SOX 0.79%

VOLUME: NYSE -8%, NASDAQ -9%. Trade at least faded on the reversal, but it is because of a lack of volume that helped the reversal along given the early buying was not strong. Thus trade faded farther below average.

A/D: NYSE flat, NASDAQ flat.

The chart action on the week is bearish. The big Tuesday drop, the pause, then the Thursday gap and selloff. The rebound was modestly encouraging as it looked as if the Fed stepped in on SP500 and company and bought the dip, driving those indices back up inside the early September lows hit on that massive plunge 6 Fridays back.

The Friday action kept the indices above the early September low but that is about all it did. The indices moved up to tap resistance either from the 50 day EMA or the 10 day EMA and then reversed to give up nearly all the session gains. Indeed, RUTX did give up its gains and closed lower.

So, in a nutshell, after a quiet period where volatility died down and the NYSE indices looked as if they might try to follow NASDAQ and SOX' strength, the big V returned with gusto this week. A new selloff to new lows on this pullback for some of the indices, followed by a bounce that looks all but dead and over with.

That reopens the downside door and again leaves you asking the question, will the Fed try to stop any selling given the election is less than a month away? I am inclined to answer that 'yes.' Will the Fed be successful? In the short run the Fed can pull that off. It did so in February and pushed a very solid rebound. Friday Yellen was more dovish, "steering to the left of the Minutes" as a JPM analyst described it, indicating that she, of course, will take actions she deems necessary. So, it appears she will try, but will she overcome the market's bearish patterns.

Nonetheless, we picked up some SPY puts given the overall bearish chart. This has been an on again, off again market, but Mondays can be ugly in a market that has broken hard to the downside and has failed a bounce test.

Have a great weekend!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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