Alan Greenspan Says Recession Is Here

Alan Greenspan has gone on record, offering his opinion that the U.S. economy is now in a recession. Boeing just announced further delays in the development of its new 787 Dreamliner. Oil and gasoline prices are pushing higher. American Airlines has canceled over 800 flights, on the heels of having canceled 500 flights just yesterday.

There is plenty of bad news out there, but how is the market responding to it?



Above is a daily chart of the S&P 500. We have recently found a bottom around 1,275, off of which we have recently rallied.

With all of the bad news, one might expect to see the market selling off hard especially in light of the pronouncement by our former Fed chief that the economy is in recession. Yet, doesn't look all that bad on Wall Street this morning.

Many have suggested that the worse case scenarios have already been priced into the market and that it is in the process of bottoming. That may be the case, but only time will tell.

Looking at the chart, you should pay attention to the trend line. It extends back to the fourth quarter of last year, when our bull market was blowing off the last of its steam. Since that time, we have failed to make a new high and the downward sloping trend line remains in tact.

Nonetheless, we have pushed through the 50-day moving average. However, it seems that our latest rally is losing momentum before reaching 1,390, our prior swing high.

The battle, as I see it, is between those who think we may have bottomed but do not want to jump into the market in case they are wrong versus the bears looking to again short this market but don't want to get short just before it busts through resistance.

We've got a stand off!

My sense is that if earnings show some evidence of resilience, the market will interpret that as a sign that things are not that bad and that we will likely see the economy firm up and return to a growth mode in the second half. In that case, expect to see capital return to the market.

The bad news is out, the market is not responding to it, and this is now all about the ability of corporate America to grow earnings. Someone is going to blink here. It may be the bulls. It could well be the bears. Whatever the case, we should pay attention to earnings on the fundamental side of the equation, price and volume on the technical side, and watch as this show down plays out.

Christopher Smith
TheOptionClub.com