A Bounce Is Possible, but Resistance Remains

The loss of 63,000 jobs in February was troubling news. Worse still, the losses were widespread, with major cuts coming out of the manufacturing, retail, construction and professional business services.

Economists actually expected a 25,000 increase in payrolls. This report was much weaker than the economists were expecting. As noted in the past, investors should not make investment decisions by following the media or tracking government claims, as these numbers can be manipulated.

The Federal Reserve also stepped in aggressively by increasing the amount of money it will auction to banks this month to $100 billion. This move is aimed at stimulating bank lending to prevent a major credit squeeze from exacerbating the current economic slowdown. The Fed's action is giving banks a short-term pop, but I continue to believe that there is more weakness to come in this sector.

The weak job numbers sent the markets sharply lower Friday morning, but they have since rebounded off the lows. As I noted in my column on Wednesday, "many of my short-term sentiment indicators are certainly in an oversold condition, but my intermediate-term ones that I heavily rely upon are not there yet. That leads me to believe that this rally will be fairly short-lived. I do believe that we are nearing a time of a significant bounce higher, but we need more panic when we break support levels."

I know that I'm going to be flooded with emails with the question of whether this oversold condition will produce a significant bounce higher. By significant bounce I mean a rally that could possibly take the S&P 500 up to around 1400-1450 and the Nasdaq Composite up to the 2500 level.

There's certainly a possibility that we can go higher than that, but it would take a tremendous amount by to push us through a huge amount of overhead resistance.

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Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.