Stocks Crash, Economy stalls, what else is new?

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Stocks Crash, Economy stalls, what else is new?

Does this short headline surprises you? Probably not. The stock market the DOW crashed 500 points today and   S&P 500 dived 58 points in one of the most vicious sell offs seen this year. The market has been poised to fall after a brief rally yesterday. Ever since the debt ceiling debate has sprung up the market been very uneasy on it. Last two weeks have intensified this fury to a new level. The Debt ceiling debate, Constant wrangling in Washington, TV posturing by members of Congress and a pathetic process left almost all American distasteful of politics and the ugly process took its toll to get where we should have been in the first place. Here is a chart of S&P500 take a look:

Public is completely fried over the deal and 46% people in the country are unhappy about the final agreement which resulted in preventing a first ever US default on its obligations and later downgrade of US credit ratings by rating agencies. This was a big deal, a happy moment right? No, not at all. Finally the debt ceiling was signed into the law, allowing President Obama and Treasury to borrow another $2.1 Trillion dollars to run the show but with many stipulations to cut spending via special Congress committee and other provisions in the debt ceiling agreement. Many analysts thought this will rally the markets, but the reaction was of diffused anger, a thud and a sigh of anger.

This dragging over the coals has hurt the American investors and the market sentiment way too much over last four weeks and created and atmosphere of complete uncertainty. In today’s market we are seeing the malaise and anxiety about our future in the form of relentlessly selling.

If this was not enough Friday’s GDP numbers threw cold water on already bad situation, as the revised numbers showed that the economy grew merely 0.8 percent in the first half of the year. That was the thud in the situation. Monday Institute of Supply Management’s report showed factory orders lagging and factory output declining, and on Tuesday consumer spending report showed considerable drops in consumer spending, that was the sigh of anger. The result ? Stocks and investor’s confidence never regained any footing and the selling persisted relentlessly.

Few things in the economy are working, the jobless claims may have subsided a bit down to 400,000 but that is not good enough. Unless we have a robust unemployment report on Friday the stocks are not going to recover anytime soon. The market is extremely oversold, a condition where Technical Traders start buying and a rally ensues. These levels are reached when there is excessive selling in a short period and relentlessly selling for few days in row. The chart shows that the SPX is stuck into the right hand corner with its nose down to the ground.

Whatever the reasons unless the fundamentals change and if we see robust job growth or strong consumer spending the market is not going to do anywhere close to what we saw last six months. We are in a sideways consolidation pattern here since May 2011 and as you can see from the two yellow lines drawn next to each other. We may go up higher few days and slide again.

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