Fade Not Surprising

The DJIA faltered up 50 which is not surprising at all. Government stimulus hype has now deflated leaving the market weak and vulnerable to news flow. The market's action is really weak as well. Nothing can be sustained on the upside and a retest of the lows seems inevitable now. S&P shorts should be held until the 750-760 level has been hit. Financials are getting burned and the XLF continues to moves lower. That sector seems to be pulling down everything else. Only the most defensive stocks such as TEVA, WMT are surviving.

Merrill is looking at 12x $55 earnings on the S&P leaving the market at 660 this coming fall. I think that is a very strong possibility. What may happen now is we get a slight bounce from the retest and then tread water before going into another downturn a month from now. At best we stay range bound from 750-950. The data is not able to support a move above those levels and consumers/businesses are unlikely to change tepid spending behavior in the face of job losses/lower home/equity prices. Thus, I'd keep short term focused with an eye out for future deterioration.