Stocks Coming to Terms With Negative Data

On Wednesday, the market received a lot of dire news as numerous reports came out showing that the economy is continuing to weaken. For example, consumer sentiment continued to decline in November as job losses, declining incomes and market losses continue to mount, and Americans' wealth is evaporating.

Consumer spending also experienced the biggest drop since September 2001 on reported data of a 1% decline last month. Another report, from the Commerce Department, showed that sales of new homes declined an estimated 5.3% in October, to the lowest level since 1991. That was topped off by the four-week average of first-time filings for unemployment benefits jumping to a 25-year high.

With the barrage of bad news hitting the market, prices rebounded from the morning lows on Wednesday, and stocks closed positively in light trading. This is one of the things that I said we would need to see before you can even start talking about a turnaround. However, stocks needs to consistently hold steady or move up on bad news over more than just one day. When that happens, it will be the heads-up that institutional money is beginning to switch from a liquidating bias to an accumulation bias.

My friend Marty Chenard over at StockTiming.com made an interesting observation the other day: "For the market to hold a bottom here, a number of institutions will have to start a buying process because they are individually afraid to be the 'lone ranger' and charge off without the rest of them doing the same thing. Institutions are decreasing the amount of distribution ... but still remain in net distribution." He also stated that institutional liquidity outflows remain in contraction, and that a bottoming process is trying to be established.

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At time of publication, Manning had no positions in stocks mentioned, although holdings can change at any time.

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.