We really have two economies now: the primary economy consisting of large multinational corporations and financial institutions that are "too big to fail," and the economy-at-large comprised of domestic businesses and the little people. The government-supported multinationals make more money overseas than they do domestically -- they sell their goods and services to the emerging middle class of China, India, Brazil, etc. They need a weak dollar to support their ongoing success whereas the general economy needs a stronger dollar to reduce the cost of imported oil and other raw materials. The self-serving financial institutions help out by selling the dollar and buying the yen, euro, and U.S. index futures as needed to maintain a favorable status for the primary economy.

While there are some bright spots in the GDP report, the general weakness is a reflection of the profit-seeking selfishness of the primary economy and the government's support of the primary economy to the detriment of the general economy. The stimulus programs for the general economy were withdrawn and their effects have already faded. For me, the important issue is whether the general economy can recover and strengthen with only bandage support from our government.

 As you pointed out, the market is looking ahead ... but the stock market is a tool of the primary economy and therefore reflects its success. Should foreign currencies strengthen against the dollar, the vibrant multinationals will run into trouble.

OK, let me get this straight. GDP came in lower than expected; the futures sold off resulting in a gap-down opening. Traders bought up the indexes to fill the gap; the indexes consolidated then broke lower; traders then bought the dip off the broken consolidation ... and we're still not done. I believe we have frittered away another Friday.

The European markets are closed so the trading inspired by the bank tests is being pushed into the US markets. The resulting price action is likely to be skewed so today may not be a good day to gauge the US indexes or to make a serious capital commitment.

Matt, why does your 60-minute ES chart show a gap? On an ES chart, I would expect price continutiy from yesterday's session. Could the gap affect the Cycle analysis or the other indicators?

Good thoughts on sentiment, Palladin.

Indeed the market does not like uncertainty, master Matt, and this is one of the more jittery scenarios I have seen. Traders' time horizons have been squeezed down to microseconds. At EOD, the SPY held the hourly 68% bullish Fib fan but it fell from the resistance of the 50% bearish Fib fan -- the SPY certainly can't take another hit in its precarious position.

Today was yet another example of sentiment-driven performance. Ben’s statement concerning raising interest rates hit the tape like the proverbial ton of bricks. If traders are jumping on and off the train, I must conclude that they really don’t see anything in the market worth their conviction. Until some real leadership shows up or until this mob is replaced with a more mature mob, the market is in for a rough ride.

Despite the yo-yo antics, the SPX held rising support on my intraday charts so I can’t discount the possibility of yet another attempt to break the 1100 barrier but the bulls will have to work hard to push the SPX beyond 1085. On the down side, a break of 1056 would be serious and likely bring a retest of the 1040 area. As long as emotions rule this market, the next move will likely be based on a reaction to news or earnings and therefore unpredictable.

An understatement Csprit ... but Ben's statement did not seem that provocative. Here is the Bloomberg summary:

"Federal Reserve Chairman Ben S. Bernanke said central bankers “remain prepared” to act as needed to aid growth even as they get ready to eventually raise interest rates from almost zero and shrink a record balance sheet."

I surmise that the mention of raising interest rates was all that was necessary to scare this fickle crowd out of their bullish mindset. Higher rates should be expected at this point so the dramatic selloff seems a bit excessive.

The ES has broken its rising support but needs to take out and stay below 1076 to qualify the reversal. The IWM is down nearly 2% as I write this.

Matt, it looks like a lot of sell-stops were hit. It's likely that there are some buy orders around SPY 108.25 to 108.40 -- these orders could absorb the selling pressure and create a temporary equilibrium.

The current 15-minute bar on the SPY is rather long and red -- has anyone else noticed this? I am always amazed at how quickly the market can turn. The SPY has support near 108.40 and an open gap at 108.25; if those areas are taken out, the next support is 107.15 to 108.

You have a great point, Palladin. I have found that bullish sentiment does not wear off easily -- as long as prices are firm, externalites such as the FOMC report can be ignored. Bullish sentiment is eradicated with falling prices and the introduction of bearish sentiment.

Time to go long.  

Seriously, Ditch, the market is whipping around here and I don't trust this scenario enough to make a trade. It looks like the SPY has made either an "A" or a "1" down from its peak and the subsequent bounce should be a "B" or a "2" which means more downside to come. However, the buyers appear unwilling to give up and are poucing on every opportunity. For now, the bullish sentiment is enough to trump the bearish patterns and technicals. I wouldn't be surprised to see an EOD ramp and higher close for all indexes.

Thank you Beth. My trading platform is partially disabled -- I can trade but I don't have quotes or news. It looks like the indexes are bouncing back for a retest of the break. The SPY is at the bottom of its trading range and might be forming a topping pattern -- neckline at 108.96.

Is this a technical selloff or did some bad news hit the tape? ThinkorSwim went down for a few minutes and I lost contact with the world.

The SPX and SPY appear to have negated the possibility so it's moot at this point. My thinking was that the drop from yesterday's close was "A"; the bounce off today's low was "B"; and there would be a "C" down to complete.

Do we have an A-B-C correction underway on the SPX/SPY? Take a look at the 5-min chart.

ES has broken its rising wedge and has formed a potential H&S top or a rounded top ... neckline at 1087.75. Note the weak MACD.

Ditch, the market may be climbing a wall of relief rather than a wall of worry. The favorable earnings from AA and CSX have temporarily relieved concerns that the economy is failing again. Personally, I feel the economy is still in trouble and the numbers will eventually show it but, for now, traders are celebrating the good news.

Ditch, I appreciate the technical perspective here but I am not sure that technicals are driving this market right now -- I believe that bullish sentiment is now the ruling force. The indexes rallied for about 14 months on low volume while competent analysts consitently underestimated the market's reach. When mob sentiment becomes extreme, facts tend to be ignored -- that includes economic data, market fundamentals, and market technicals. The facts are noticed and talked about but the observations have little impact on the market while sentiment is in charge.

Today, the opening gap cut some people out of potential gains so there will be late arrivers to push prices higher. When enough of those stragglers join, the markets will achieve the critical mass required to change direction. Greater participation increases volume and volatility and tends to increase the effectiveness of technical analysis.