• November 18, 2011

    U.S. Stock Market
    “Could Get Ugly Quickly”


    By Dennis Slothower
    Editor, Stealth Stocks


    Stocks fell sharply in early afternoon trading on Thursday as nervous investors bailed out of the market once the S&P 500 broke a key technical support level.

    Once again stocks were hit hard on Thursday as intermediate-term cycles appear to be showing more evidence of rolling over to the downside.

    Stocks failed to hold above the technical support at the 50-day exponential moving average (at S&P 500 1225), then sold down to near the 50-day simple moving average (at 1205) where the next support level held for now. The S&P 500 closed at 1216, 1 point above its monthly middle BB line.

    This is the most likely place where a defense should develop if one is coming, but a breach and a close below 1205 would spell serious technical trouble for the stock market that could get ugly quickly.

    Crude oil fell $3.77 to close at $98.93, so maybe a falling euro and rising dollar is getting to oil speculators now given Europe’s failure to put together a credible rescue package.

    Gold also was hit hard, down $54 to $1719. Heads up, what you are seeing is gold and silver selling to raise liquidity particularly by investment banks who are being force to raise liquidity to meet cash demands, as Europe braces for the worst economic crisis since World War II.



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    The primary trend in gold is still intact but gold’s uptrend is suspect if Europe melts down.

    There are a lot of issues at play but clearly Europe’s problems are making investors realize liquidity problems for banks are approaching similar concern levels seen in 2008, following the Lehman Brothers collapse.

    In October, the markets were sold a bill of goods that the EFSF bailout fund would have the funding to deal with Greece and help stabilize Europe’s sovereign debt issues but it is looking like a lot of banks are not going to get bailed out in Europe and so a scramble for liquidity is once again a growing concern.

    The markets are realizing Europe may not have the liquidity to fund the EFSF bailout fund.

    No one seems to know how this is going to play out but the European markets have started another leg down, along with the euro!


    The euro was very strong in October but is failing in November. It is rather obvious that without some sort of an answer for the fund-less EFSF bailout fund, the euro has plenty of downside risk here.

    Is the Economy Getting Better?


    I wouldn’t get too enamored about some of the meager improvements in the economy.

    It is not that I don’t appreciate improvements, I pray for them. But you have to understand that when crude oil prices fell from $100 a barrel in August to $75 a barrel at the end of September and gasoline prices backed off from $4 a gallon to $3.40 a gallon, it took some pressure off the consumer.


    Unfortunately, crude oil spiking $25 over the last 31 days will put pressure back on the economy again. On the other hand, if crude oil prices continue to back off, the stock market will back off – so the bullish picture is quickly starting to crumble.

    Another reason why the market is on edge right now is time is running out for the super committee. We have not heard much and there are only six days left before the November 23 deadline to find $1.2 trillion in deficit reduction.

    Talks seem to be at a standstill with the national debt having crossed above $15 trillion this week. Let’s hope something can be put together as the markets are very vulnerable right now if they remain deadlocked.

    Technically, as I have talked about this week, the market is subject to oscillating between its 200-day SMA on the upside and the lower 50-day SMA. Prices are now testing the 50-day SMA, which needs to hold up or we will see a new drop into strong bearish territory.

    Are Goldman and JP Morgan going to step up and defend this support level? We are about to find out.

    Friday, November 18th, 2011 at 15:16
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