European Surprise

One thing I've learned through the years is to expect the unexpected. The global-economic reports have been poor, and have been getting worse as time moves along. It doesn't matter what part of the globe we're speaking about, the news just keeps getting worse. Based on that reality, we've seen our markets struggle for quite some time now. Fundamentals are rising above fear. When you think about how intense fear is, it's pretty amazing that the bears can still win with poor fundamentals. That said, the unexpected good news hit out of nowhere, which is how it always occurs. The Euro Zone had their retail-sales report, and it came in better than expected, not only month over month, but year over year. The Euro Zone saw all of their markets rise on that news, and, in some cases, explosively so. There are so many shorts out there that it wouldn't take too much to get a decent rally.

While the rally was not across the board, as many stocks performed poorly today with strong reversals down off the highs on the biotech stocks, the overall rally was good, and, thus, kept the bears away from another rout. The bulls getting a gap up, which, of course, makes the journey for the bears a bit tougher. Gaps are key. The bulls have this on their side as they try to rally the market off the recent lows. The next report on retail sales may come in horribly, but it only takes one surprise on any given economic report, and the market can reverse its most recent movement. Europe was the happy surprise today for the market globally. You can't count on anything holding over time, but the bulls will say thanks to their European neighbors for today's sweet move higher, even though, again, many areas did not act very well. It tells you the red flag is still up. Not being across the board is a negative, but in this poor, overall, environment you take what you can get.

Our ISM Services Report came in today after getting the poor ISM Manufacturing Report last week. Both reports ended up coming in weakly. The market ignored our bad number today simply because of the number of shorts covering on the Euro Zone retail-sales report. The report here at home, however, should not be over looked. Services and manufacturing are either in or on precipice of recession. If this continues on a bit longer, how is the market going to deal with being in an official recession. I would think not well. While fear and pessimism could act as a shock absorber, the market would still respond poorly. We'd have to reign in those lofty P/E's.

What is a bit disturbing about it all is the reality of how fast the move down has been with regards to our economy. It seemingly happened overnight. We had the ISM near 58, which is very healthy, not that long ago. Now we're hovering at recession at 50.5. Below 50.0 is officially recession. Of course, this is why the Fed is on hold, yet again, with the rate cycle. Staying at zero, which is exactly where it doesn't belong. So in the end the news is bad for our economy. We should not forget that, even with the unexpected good news out of the Euro Zone today. Don't let your guard down until the reports start coming in more favorably. We have yet to see any evidence of improvement.

S&P 500 1987 to 2000 is big resistance, which is basically the mid-point of the move. From the recent high to the recent low this area is a 50% retrace. Also, this is where the 50-day exponential moving average loves, and we saw how badly the biotech stocks did with that back test today. Total and complete massive failure. So, again, don't let your guard down. And that failure happened from a lower moving average, the 20's. Now, it is normal to fail the first time you back test key resistance, but you need to respect the failure, and then watch to see how the oscillators respond as well. This will give hints as to whether the failure is longer-term or likely just shorter-term in nature.

It is still a very dangerous environment for aggressive playing. Buying weakness is best. Support comes in at S&P 500 1947 or the 20 day exponential moving average. Sadly, a day at a time is still best as there's no real consistent action one way or the other for now.