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The stock market got slammed on Friday after a worse than expected jobs report, weak China PMI report, and continued fears out of Europe.  I am back to the drawing board this weekend trying to figure out the levels to watch next week and where I think a potential short term bottom is for the stock market in 2012.

First look at the $USHL - The USHL is a great tool to use because it tracks new highs and new lows.  $USHL updates each day after the close.  As you can see from the chart, we've seen a huge rebound over the last 2 years when $USHL dropped below -300.  When the $USHL drops below -500, there is usually a crash followed by a massive rebound.  The $USHL closed at -277 on Friday.  To me, this indicates that we are nearing a short term bottom and a bounce can happen at any time.  If we don't get the bounce we may be setting up for a short term crash.

S&P 500 Support Levels - The S&P 500 is nearing a thick are of support between 1267 -1278.  These two price levels were tops in November and December 2011.  They should now act as support on the downside, or, a level where buyers will likely step in.  If the S&P 500 closes below 1267 next week, watch 1240-1250 but we will have to dig even deeper into the numbers.

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This is also interesting, the last time the $USHL was at it's lowest point was Thanksgiving week when people were puking up stocks left and right.  The week after, Europe added liquidity to the financial system and China slashed lending requirement rates which caused a 470 point rally on the Dow Jones ( 11/30/11 ).  The S&P closed at 1248 that day.  The S&P went on to rally up to 1267 before a retest of 1200.  Interesting numbers and events.

I think similar intervention plan may be announced sometime next week.

i think its gone down enough, i remember back end of july for about a month the dow sank, went down $2000

then quickly started to rebound

i think we will see a rebound in june/july

Thats true but we may see S&P 1240 before we see a rebound

I think the market needs the proper fiscal policy balance in this area, not monetary policy. The latter should be reserved for actual capitulation when we are in danger of a lower low than last year. Domestically, there is something inherently wrong when corporate earnings are up and lending and employment are down. Ironically, the issue or solution at least resides with the private sector, not government -- particularly because government has been cutting public sector jobs and significantly reducing the growth in spending compared to the last few administrations. Both unhelpful in the short-run. All this said, the real uncertainty and volatility, to my mind, stems from abroad. But the cultural war is the issue at home, and not one political view or the other, as they are actually comparable in practice, just with very different constituencies. The problem is the lack of agreement and common resolve to sequence spending and austerity in the proper order, as well as pinpoint the adequate level of regulation so the system works for the majority.

Tim, it's helpful to have all signals going in the same direction. I'm getting about the same levels and price action with my EW analysis.

That's a good summary of where we are, Rob. And, I think on all the threads we are seeing the same levels, i.e. the 1249-1275 area. The real wall we are running into is the psychology of seasonality. While the prices are right, some buyers who undertake a cost/benefit analysis may not be too concerned about the opportunity cost associated with sitting out these months, as the real leg up to catch is typically Q1. So, how do people time the big bounce off support when they are not certain this is the exact bottom now, also mindful that a lower low might occur later in Q2 or Q3, like last year. From this bottom in Q2, do we have the stomach to ride a choppy climb should we get our retrace upward, ostensibly to a lower high? I would say those who know what they are doing do have the stomach, temperament and shopping list to come in when sentiment and prices are this low. But this does not mean they like it, nor that they will do it confidently. ...If only the robots would tell us their moves ahead of time, so we could catch (or avoid) the exact u-turns.

But, the fact that everyone is "thinking" bottom soon is a very good sign. The problem is the news has neither a head nor a heart. It's just a bunch of jangled confusion and nerves, precisely the opposite of what methodical trading is about.

Appreciate the commentary.

Looks as if stock futures are indicating a continued decline tomorrow:

- S&P down about 10 points

- NASDAQ down roughly 20

- Dow down a bit more than 100 points

What's the investor consensus? Go to cash? Sit tight and stick it out?

I'm definitely at sea myself. Anyone expect a reversal monday or tuesday?

i think this week should be alright, we have these 4 movers to bring it up this week, i dont think we will have another drop that bad like we did on friday, we will have to wait and see

Factory Orders - June 4, 2012 - On  6/4/12, Factory Orders will be released.  This should be a big stock market mover.

ISM Services (ISM) - June 5, 2012 - On 6/5/12, ISM Services will be released - Market expects 53.0.

Fed's Beige Book - June 6, 2012 - 2pm EST

Ben Bernanke Speaks - June 7, 2012 - 10am EST

We are entering a strong support zone which, depending on your timeframe and how/what you trade, should mean getting in not out after this 150 pt drop. Bernanke speaks Thursday which will be a trigger, either before or after. And, I would imagine the administration will chatter about another policy option on jobs, effectively squeezing the congress to act or be stuck with the political consequences he himself has hated being stuck with. So, maybe a lower low ahead (although the futures tonight say nothing of tomorrow), but expect a violent bounce as well. It would take some serious crickets from Obama, Bernanke and European leaders for us not to bounce by 1250. My best guess is we get a move prior, 15pts above that. This week will be fascinating.

what 150 point drop ? premarket for dow ?

dow down 68 at 2am.

looking at 1276.79 spx tomorrow


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