I don’t think stocks have broken their long-term upward trend but that’s a worry that means this market will take a while to base

You’ll be hearing a lot of talk over the next days and weeks from the technical analysts about the damage that’s been inflicted upon the condition of the markets. That’s one reason, they’ll say, that this market won’t bounce back immediately from its extremely oversold current condition and begin a new rally.

But what does that mean when you translate it?

Actually, it’s pretty straightforward. What the technicians are saying is that the market’s plunge has taken stocks down to levels that make it hard to tell whether this is a short-term correction in what is still a market that is trending upward in the longer term or if this drop has broken the longer-term upward trend and the market is about to drop further.

For a while it was possible to believe that this decline would take the Standard & Poor’s 500 back to its November 2010 lows near 1170. Read more

Apocalypse now?

I haven’t heard anyone breathe the phrase but we’ve come close this morning.

Here’s Mr. Bond, Pimco’s Bill Gross yesterday on Bloomberg TV: “We’re not looking at a recession yet, but we’re at a tipping point.”

And here’s Harvard’s Martin Feldstein, chairman of the Council of Economic Advisors to President Ronald Reagan: “This economy is really balanced on the edge. There’s now a 50% percent chance that we could slide into a new recession.”

I love the smell of fear in the morning. It usually signals that a buying opportunity is approaching.

Through yesterday the seven-day slide (continuing so far today) has wiped out the total year-to-date gain in the Standard & Poor’s 500 and erased $1.1 trillion in U.S. stock market value. Yesterday’s 2.6% drop in the S&P 500 is the biggest loss in a year, and this seven-day downturn is the longest losing streak since October 2008 in the depths of the global financial crisis.

Technical indicators are now reading “oversold” with many showing the most oversold reading since July 2010. The S&P 500 bottomed on July 1 at 1027 that year. The subsequent rally took the market to its April 27 peak of 1356 on the S&P 500 for a 32% gain.

The problem with oversold readings is that an oversold market can get even more oversold before it begins to rally. Read more

A very volatile but ultimately constructive day for U.S. stocks

Very interesting day in the stock market. And actually a positive one even though such major indexes as the Standard & Poor’s 500 finished in the red for the day.

Stocks opened down strongly in New York. At 10:51 a.m. New York time, the S&P 500 was down to 1262.87, which turned out to be the low of the day. That level represents key support for stocks at the June 15 low (1265), the 200-day moving average (1263), and the March 16 low of 1256.88.

If stocks had kept falling through those levels, it would be a sign that the body of investors didn’t think stocks were a reasonable buy, considering the risk, at that price. And we could have started to look for a further fall and support at a lower level.

But those levels held. The market did have another dip at 2:49 New York time to 1267.50, but stocks rallied strongly in the last hour to close at 1283. That was down just 3.6 points for the day.

An intraday reversal like this isn’t a guarantee of anything. The news tomorrow on some front—U.S. durables orders or the Greek debt crisis—could still be bad enough to take out support at 1257-1265.

But the fact that stocks were able to stage this kind of recovery after challenging support is a constructive sign.

Think of it this way: enough traders and investors were willing to buy at 1262.87 with all the news event risk that hangs over this market to make stocks reverse course in the later part of the day.

If we can just get a day when the news isn’t so relentlessly grim….

Bad news. And more bad news today.

Yet my suspicion is that stocks wouldn’t be down so much today, June 23, if they hadn’t been up so much on June 21. So far, today’s 1.1% decline in the Standard & Poor’s 500 (as of 1 p.m. New York time) amounts to profit taking on the June 21 move up to 1296 on the index. The current 1273 on the S&P is still above the 1265 low of June 15 and above the critical 200-day moving average at 1263.

A 1% drop on today’s list of bad news is, well, actually rather modest. U.S. initial claims for unemployment for the week ended June 18 climbed by 9,000. European Central Bank President Jean-Claude Trichet said that the Greek debt crisis threatens banks.  The euro fell and the dollar rose—which helped push oil prices below $90 a barrel for the first time since February. Oil prices were headed lower anyway after the International Energy Agency announced that it would release 60 million barrels of oil from its emergency stockpile to make up for production lost to the Libyan civil war.

I’m watching to see if the 1262-1265 level holds again. In which case stocks are in a narrow trading range as everybody waits for some “solution” to the Greek debt crisis.

For U.S. stocks the long-term upward trend is in danger–thanks to worries about the euro

So far—and I mean “so far”—the major U.S. stock market indexes remain in their long-term upward trends. But we’re getting close, the technicians say, to levels that would put the continuation of that uptrend in doubt.

For the Dow Jones Industrial Average, which drooped to 12356 at the close today, May 24, the key level for support is 12100, wrote Arthur Hill on May 23 on StockCharts.com. That level represents the low for April and the trend line that stretches back to last November. A close solidly below that number would mark a new level of risk in the U.S. stock market.

One thing that troubles me about the U.S. market’s ability to hold that level and keep that upward trend line intact is the breakdown of core European stock markets. The Italian and Spanish markets have both broken support but those declines aren’t what worry me. It’s the breakdown in the Dutch market where, Hill notes, the Dow Jones Netherlands Index broke below its March low recently. The Dutch economy has been one of the stronger in Europe.

The German and French stock markets—the keys to Europe’s financial markets—are also looking a little shaky. Read more