Saturday, September 3, 2011

Probably Should Stay Defensive For Now

This morning I was contemplating whether or not a bad jobs report was discounted by the market. After the action today, I think we can safely conclude that the answer was no.

Market players knew that the economy wasn’t too rosy but the poor data confirmed those fears a little too aggressively. The only silver lining that the bulls could find is that maybe this will push the Fed to act more aggressively. But the cynics were firm in their conviction that there just isn't much the Fed can do at this point anyway. We already have plenty of cheap money out there and adding more does little to change the structural problems that we are grappling with.

The only positive thing I can say about this action is that it will eventually lead to some good opportunities. Just like the selloff in 2008 and 2009 gave us some great values this selloff will also but, like most everything in the market, it is all about the timing. If you act too soon, you can pay a very high price for your impatience but the desire to try to catch the exact bottom can be extremely hard to resist.

The market is now working on its second failed bounce after the massive breakdown in early August and the news flow is the worst since the crash in 2008-09. The S&P 500 is well above the important technical support at 1120 or so but if it comes close to testing it again, it is going to be quite gut-wrenching. The best-case scenario right now is that we stay in this trading range for a while and build a further foundation from which to move higher.

We are going to have plenty of news to sort out after the Labor Day holiday as President Obama announces his newest jobs plan and the European mess continues to unfold. We are also going to continue to hear much about what the Fed is going to do and that may help the bulls a bit. Unfortunately, this is also the seasonally weakest time of the year and that may have some negative psychological impact.