The stock market is so weak it broke through the bottom of its bearish trend channel

The stock market is extremely weak. It has broken below its bearish trend channel and also below the mid point of the last significant rally from September 29 to November 4. The reason the market’s weakness has been so jarring for so many, is because the Federal Government has been hiding the economic weakness. Take the recent jobs report (i.e.,www.bls.gov/news.relase/pdf/empsit.pdf ) . Buried deep inside this huge report, is the non-seasonal jobs data for November and December. The seasonally adjusted number is provided for you (i.e., they’ve done the subtraction) at 292,000. However, when you subtract November from December for the non-seasonal data you get only 11,000. Another way of looking at this is that the actual data component of the seasonally-adjusted number is 3.8%!

There are two ways to make money when the stock market is headed south: shorting and buying puts. Buying a put has the advantage of leverage and a fixed risk. But, assuming the market goes down as you expect, the put will initially lag behind the short in showing you a profit. This is because the difference between the bid and ask is significant for the put while insignificant for a stock trade. If you buy or short a stock, you’ll see a profit from the moment the stock moves your way. I don’t think this consideration is meaningful over the longer term of weeks or even months for a good trade.

Here’s the chart of the S&P 500:

sp500

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