Sunday, November 08, 2009

Recovery Not Strong By Historical Standards

- Investors mull jobs report in a volatile first hour then punt and leave for the weekend.
- Dollar/Stocks/Oil relationship may be waning.
- Non-farm jobs versus household survey: which is supreme?
- Recovery yes, but it is not a strong one by historical standards
- Stock market not predicting the economy this time around.
- Rebound quality not that great as stocks may opt for a consolidation before a new rally.

Jobs report dominates but investors decide to leave it for next week.

Friday was all about the monthly jobs report. They came in a bit heavier than expected (-190K versus -175K expected) but investors could handle that. The problem was that the unemployment aspect of the household survey came in at 10.2%, leapfrogging expectations of 9.9% and topping that 10% level that everyone feared could get here. That is the worst showing since 1983.

There was good and there was bad in the report for the market. The good, on top of the decent non-farm payrolls, were their revisions from August and September. There were some other bad areas that I will discuss later. Suffice to say, the market was a bit confused after the report came out, and the futures turned lower. They were up a bit, but turned lower after the number. The market opened lower as well, but it was not a tanking. The market almost immediately rebounded and went up to a session high, turning positive within an hour. It then turned back down and was negative once more. It was a volatile open because investors had to chew on the numbers and decide whether the good outweighed the bad or vice versa. By the end of the day, the investors went out and the market flat-lined for the rest of the session and went out with virtually no gains. The big indices posted modest gains, while the small caps and semiconductors posted modest losses. Investors punted and did not tell us anything about what they were going to do with respect to the overall patterns in the indices that I will talk about in the technical section.

With that "nothing happening" action, we did not do a lot either. The market was not conducive to great buys. There were stocks that were moving higher and continuing a move from earlier in the week. There were some moving lower, continuing what they had been doing and setting up some downside patterns. We have a split market right now. Some stocks are setting up downside such as semiconductors, while others (most of the same leaders we have seen all along) continue to hold up very well.

The market has run a long way and is running into some important resistance levels, so it has decided to consolidate somewhat. This was seen in June and July, and seems more likely versus a major, massive rollover given all the liquidity that is out in the world. If that were the case, you would think that the same forces that have been driving the market higher are still in place. If the market decides to consolidate as opposed to running into the end of the year as I was looking for it to do, that is fine because then the money is still out there. There will be consolidation, and maybe another run higher just as there was after the June and July consolidation. There has been a little change here, just the fact that it has run further now having put in another 30%. In addition, there was some heavy-volume selling over the past two weeks, and that has to be factored into the equation. When you look at the picture, there was not a lot of change, and that is how the market seems to have viewed it on Friday.

The dollar closed slightly stronger (1.4849 versus 1.4877 Euros on Thursday). That bit of strengthening took its toll on oil ($77.70, -1.92). Gold was up again to a new high ($1,095.90,
+ 6.60). The 10 year bond was down (3.5% from 3.53% on Thursday). Bonds rallied a bit after the jobs report, but there were not a lot of issues overall. One of the interesting things this week was that the dollar was stronger, only by fractions of a cent, yet oil lost almost $2.00. That seems disproportionate, and that is very interesting. There was this relationship between the dollar and oil and the market. If the dollar went up, then the market went down (and consequently energy went down as well) and vice versa. There was a bit of a break in that relationship this past week. On Thursday, the market rallied and the dollar was moving up, but it was not hurting the market. There is a cutting of the link between the two. It may or may not stay that way, but this is the first significant change that has happened in this relationship. It did not completely do away with it, but it is something to watch as the market moves forward because it was definitely working last week. Friday was another example. Energy was killed, but the dollar was just slightly higher. Maybe it will take more pounding of the dollar in order to make the same impact on energy and the market overall. Maybe not. Maybe the link is getting broken. Maybe the dollar is going to try to rally and the market will say that that trade is over and will look at something else (like a liquidity trade). We will see how it plays out.

That does not change the game a lot for us. We may redefine the parameters somewhat and maybe also the sectors that we are going to be playing in more, but we look at good stocks and good patterns. We look for stocks that have broken down, have hit resistance, and will roll back over. We have been hitting the industrials, energy, metals, and that type quite hard over the past six months. That may change if the relationship between the dollar and the market and energy changes. I will keep an eye on that.



The market started quite volatile. The jobs report was somewhat of a mixed quantity with positive and negative aspects, and investors took their time to digest exactly what it meant. The market opened lower and SP500 gapped down. It quickly recovered to positive only to return to negative just as quickly, but the market was able to bounce after that. Though it whittled away the gains for most of the day, the indices held positive in the end by a slim margin. It was not a great day as far as the market was concerned. The best you can say is it did not sell off early on as one might have expected given the jobs report.


The internals were not too impressive. There were small gains on each of the indices, and losses on the SOX and SP600. Breadth was slightly negative on NASDAQ at -1.1:1. On the NYSE, advancers led 1.1:1. After some hefty days of 4:1 advancers on the NYSE on Thursday, things calmed down to end the week.

Volume was terrible. Volume fell below average for the fourth day in a row on NASDAQ. This was all during gains, so it was not the best volume week as far as price/volume action. I like to see buyers coming in quantity and pushing stocks higher. When that is not the case, two things can happen. It can continue to work its way up with these kinds of gains if there is no selling impetus, or what goes up on light volume typically comes down on heavier volume, like what we saw in late October.

The volume on SP500 was down 16%. It turned just over $1B shares, but that pushed the trade well below average. The NYSE ended the week with two days of below-average volume preceded by two days of average to slightly above-average trade. There is higher volume selling in late October, and then there is a rebound with volume declining. Price is going one direction and volume is going the other, and that is not good price/volume action. It does not show that buyers are stepping in with any kind of force, and that means these kinds of moves are more subject to upset in the event that more investors show up in the market deciding to be sellers.


I have been saying that it would be the quality of the bounce after the October selling that would determine whether the market would continue rallying or run into trouble. Thus far, the quality is so-so. The indices are bouncing and they moved up the entire week; SP500 was up for the week and those gains are great. That may have been a good feat given the amount of data and some of the negative data that was out this week. There was lower volume, however, so the quality was not beautiful. That being said, is the SP500 in a lot of trouble? It looks like it will be up to SP500 to do a lot of the leading if the market is going to continue the rally. As it turns out, SP500 sold off hard to end October, but made a higher low again. Even though it did break its trendline from March, it nonetheless made the higher low and the overall upside bias remains. It held above some key support levels in August and the early-October low, so you cannot complain. Nothing will keep SP500 from moving higher as long as the liquidity comes back in and pushes it that way. SP500 is very much can continue the run higher and lead the market. It looks like there will have to be some leadership when you look at the other markets.

The NASDAQ is not in terrible shape either, but it did break its trendline a long time ago and made a lower low. It has recovered, but it did so on declining volume. It is not as severe a decline as on the NYSE because there were a couple of days of upside pop, but it was below-average and, indeed, much lower than the downside trade to end October. There is a bounce from NASDAQ. It held above some support in the August peaks as well, and it did manage to break some resistance in the 2,100 area. It is now in that band of resistance that takes it up to the September peak. The September peak is key because that is where the market bottomed three times in 2008. There is some serious resistance there, and that is why it turned back and will need a hand (perhaps from SP500) to get through that resistance next week. It is not in terrible shape, but is also not showing a lot of pop. This is not a slam-dunk roll over. It looks like a June and July type of correction. What has happened to NASDAQ over the past three weeks is not necessarily the kiss of death. Even though this bounce was not great, it held where it needed to hold.

The small caps are not so cheery. They made the higher high but also a lower low, and it broke through the August levels that the other two indices held. That put it below the early-October low. It made a lower low, it has rebounded on the lower NYSE volume, and it is now at a lower peak in August and is having an issue. There is a doji on the candlestick chart. It is not definitive, but given the fact that it has bumped resistance, it suggests that it is going to face trouble. The SP600 is a growth index, so you have to be concerned when it starts to show signs of rollover.

The SOX is really in trouble. There was a double top, and it broke below a key support level in the July and August peaks as well as the early October low. It managed to bounce at some support in the June peaks and August low. It has rebounded but gone back up to resistance, and (similar to SP600) it is showing doji. There is something of a tombstone doji, and that could suggest that it is not going to have a lot of upside unless it gets help from some of the other indices. When you look at the individual semiconductor stocks, you see that they are mirroring this type of action. This is not just a couple of stocks in the SOX index that are showing this kind of action, but semiconductors in general that look to be in trouble.

The SP500 has to do the lion's share of work in order to get the rest of the indices moving higher toward the end of the year. It can do it. The overall bias remains intact to the upside because it did not make the lower low; in fact, it bounced off of that level and just above it. I do not want to say that it is heading down for sure because it has not broken its overall trend. As I talked about earlier in the week, there are some serious issues that the index has to face. The first issue is the trendline from late 2007. That trendline is at the 1,100 level, and that is what SP500 has started to bunch up against. Looking at the 1,100 area where the trendline is rapidly approaching, that is the bottom of the 2004 consolidation. That is where market moved laterally for nearly a year after the 2002-2003 run higher. There are other lows and price points at that level as well from back in 2001 and 2002. It is a significant level. There are two important pieces of resistance coming together at the point where SP500 is approaching, and that is at the October peaks. It failed there once, and it did not turn over and drop dead, but it is a serious level. There has been a huge run off of the lows, similar to 2003. After the end of this year, there could very easily be a lateral move in 2010 similar to 2004. Keep that in mind as we move into next week.

We can still get more upside out of the indices because there is still room to move to the upside. SP500 closed at just about 1,070. If it moves up to 1,100, that gives it some leeway to work higher toward Thanksgiving. The real test is going to be after it gets there. 1,075 is going to be interesting in and of itself because this pattern might be trying to develop a little head and shoulders. We have seen that before back in May, June, and July. That did not pan out too well as it sprinted from 875 up to 1,100. You have to take this pattern with a grain of salt, but it is worth watching and seeing how SP500 behaves at 1,075.

Looking at NASDAQ again, it is setting up a looping top as well. Its peak is at 2,150, and it is not even close to it having closed at 2,112. There is still some work ahead, and there is a definite neckline formed. If it breaks down or stalls out in the 2,150 level, then that makes it interesting, particularly if SP500 stalls out at 1,075.

In summary, there are issues, but that is always the case after a big run. Stocks cannot go up forever in a straight line. This correction is similar to June and July, where the initial trend off the March low was broken, and then it formed a new trend off the July low. That is the one that has held up to this point, and now it has been broken. What is going to happen? You cannot keep the steep, 45-degree angle of attack indefinitely; it has to break off, consolidate, and then move higher. The only thing different right now versus back in June and July is the gain. That is a big difference, no doubt, but there is all that money flowing through the world with not much of it being used to get the economies going. If it is not going to be used by the economy, it will be used by the financial markets. After the market gets a consolidation, maybe there will not be that sprint to the end of the year that I am anticipating. The markets are a bit weary, and some of the funds that have made good money might not want to blow it all in the last month of the year. They may sit on it and let other funds do the driving if they can. If that is the case and the liquidity is still out there, we could have a nice consolidation into the end of the year. Then with the liquidity hitting, we could see a good January effect, so to speak. This January effect would be a liquidity effect as money runs into the market and pushes stocks higher once more.


Leadership has not changed a lot, although there is an interesting addition recently with the regional airlines. Oil has gone down as the dollar has strengthened over the last couple of weeks, and some of the regional airlines are performing better and setting up nice patterns. JBLU has an ABCD pattern, and it broke higher on stronger volume on Friday. RJET did not fare as well on the day, but it has an interesting pattern. It has an ABCD pattern as well, with a big reach down on the Friday intraday low and a reversal with a hammer doji. That could be a very interesting race higher from this point.

Things might turn a bit defensive, so drugs might be more interesting. AUXL has a set up an ABCD pattern as well and is bouncing up. There is no volume, but you cannot argue with the pattern and what it is doing right now.

Retail is still holding up quite well. BBY has formed something of a triangle that you can see rather clearly. It has resistance levels, but is banging back and forth and making a series of higher lows. It would be very interesting if it comes back up to the 41 level, pulls back down, and holds. You would then look for a play off of the bottom trendline because it is in the last part of the triangle and the odds of a breakout are much improved. You can get a good risk/reward point off of that lower uptrend line. That is not ready yet, but it will be if it keeps doing what it is doing. TJX is a leader. It is not in great shape as far as a buy right now, but shows its continuing uptrend. There is no issue with the trend higher, but it is just putting in a lateral consolidation. We will see in it shapes up better. Retail is still looking good despite the worries about the consumer.

Even with the dollar rising and oil falling, there is a good uptrend in energy. HAL had a good day. APC has a bit of a triangle trying to form which makes it interesting. There is a higher low and there could be a breakout. There are patterns setting up in these leaders even though a lot of them are tired.

In industrials, CAT is still trending higher, and is still in its channel and looking solid. TEX, even though it sold down, has an interesting pattern itself. It is almost an ABCD, and is consolidating at a nice support level. If it sets up a triangle, it might be a good break higher.

Leadership is still there. Some of it is winded, but that does not mean there is not good money going into other stocks. The neat thing that keeps happening is that leadership groups pull back, consolidate, and then money hits them fresh again and pushes them back higher. We have that going for us, and the liquidity trade is basically all there is out there. There are issues with there being some wear and tear on the indices. They look like they want to consolidate. If they do get a big boost of money at the end of the year, that could trump all patterns altogether and push them higher. If you are looking at them just from a technical perspective, that does not look like the case. It looks like they want to consolidate, and we could use that to play some downside and set up good upside for when the money does hit. If it does not hit before the end of the year, and it has a nice, long consolidation, we can bet that it will come in to start the new year. There could be quite a rush higher in January. It may be a rally deferred, but there is nothing confirmed in that respect as of Friday.


Jobs report has some good and some bad, but the bad is much more worrisome.

The jobs report was the big news on Friday. It was one of the most important jobs reports in quite some time because the non-farm payrolls have been trending lower and everyone is looking to when they actually get to zero. It is the same with the weekly claims - right now, we just want it to get below 500K. Not much luck with that. It did not make it on Friday either, but there were interesting parts to feed the people who feel there are positives in the job market.

Jobs were down more than expected (-190K. Revised -154K from -201K in August; -219K from
-263K in September). The revisions more than made up for the miss on the non-farm payrolls number, and that heartened people. They said they are seeing the improvement. Indeed some are saying that the rate of change in the trend shows positive job creation sometime in the spring, probably toward the end of Q1. That is, if everything stays the same and the trend remains. That is a positive.

The non-farm payrolls are interesting because it is mostly the large companies that they survey. They try to factor in the smaller companies and small businesses, but it is very difficult for the government to get that information accurately and quickly enough. That was a positive and they are saying things are looking good for the future. On the other hand, there is a 10.2% unemployment rate, and that is the highest since 1983. There is an argument about whether the non-farm payrolls or the household survey is more important. Greenspan always said the non-farms payroll was more important, but as we saw coming out of the recession in 2001, the household survey was more accurate. We saw that it was improving, and it was showing the right kind of improvement because there were many small businesses that were created thanks to tax incentives. We saw S corporations proliferate. The filings for those proliferated and small partnerships also surged. We are not seeing that this time, however. There is not a surge of any kind of small businesses as the non-farm payrolls number improved, and the household number is getting worse and worse. It is my view, and the view of many smart economists, that household is more important when you come out of recession because many of the jobs are gone. JNJ and GE and those places are not going to be hiring people because they are still laying people off. The jobs are going to come from the smaller businesses, and if the smaller ones are still saying things are bad, then things are bad.

There was a 10.2 unemployment rate, but there were interesting figures with respect to the headlines below the headlines. 17.5% of the work force is either unemployed or underemployed. Underemployed means they would like to work more but cannot get the jobs. That is why we are seeing the temporary jobs growing. That is a key factor, and it has been up for two months in a row. People want to work but they cannot. Some of the protagonists are saying that more people came into the market looking for jobs, and that is why the number rose to 10.2%. I saw people tonight taking about that, but they are wrong. They did not go back, look at the figures, and figure out what was going on. The job pool actually decreased by 500K workers. At the same time, the new unemployed increased by 1M. It was not just a factor of more people entering into the jobs market and thus pumping up the number of people out there unemployed. The number of new employed rose, so we have a serious problem. The headlines under the headlines are showing that things are not improving in employment, but they are worsening. Some of the anecdotal data from Challenger says that the layoffs are fewer, but those are only the big companies. They do not cover the small ones as closely and cannot cover them as accurately. Some of the anecdotal evidence that that things are improving is belied under the actual jobs report and what it is showing underneath the headline numbers.

More than that, the average workweek is critical. It has to increase before there will be new hires. It stayed flat at 33.0, and that is after declining from 33.3 to 33.2, to 33.1 and now holding at 33.0 for two months in a row. We have a serious problem because it has to get up to 3.5 - 3.6 before they get to the point of thinking about adding even temporary workers. All the productivity we saw and talked about on Thursday does not mean a lot does it? You can have a lot of productivity, but if companies do not feel things will get better, they are not going to hire anyway. They are just going to reap the benefits of having higher productivity and then stockpile the cash. That is good for earnings, but we are looking for jobs and getting the economy back on track. If companies are worried that jobs are going to be bad in 2010, so much so that they are not spending any of their cash on new employees, then that is a serious problem.

They are not spending money because there is a lot of uncertainty out there. There is cap and trade, and though no one knows exactly how that will impact them, they know it will not be good. There is the healthcare bill that, if it passes, will place taxes on the businesses that provide the healthcare for their employees. Either they have to pay the tax, or they are going to jettison the program altogether. That is uncertainty, and that leads to indecision. They are not going to act on it because it is always the case when the governments are considering promulgates serious legislation. Everyone waits to see how it will affect them. If they think interest rates will go down or if they think tax cuts will be passed, they are going to wait and see if they pass so they can take advantage of them. On the other hand, they may be inclined to spend if things get worse, but if they do not know what to spend it on, that could be foolish admission, so they sit back and do nothing. I am afraid that is what we are seeing now. There is a lot of stockpiling of cash that is being reaped by the increase in productivity without the usual hiring of new employees. That is not a great scenario for the rest of the country.

One to have things I heard today was comparisons to 1983. This was the worst unemployment since 1983 when there was a bad recession coming out of the long 1970's malaise. People are saying that we have the kind of issues there were back then, but that we knocked the cover off the ball coming out of that recession. That is true, but we had already gone through the 70's and then had to break the back of inflation and rally higher.

We may be going into the 70's all over again. What made the 1980's special were the policies put in place that propelled us out of that long, terrible recession. It was called the Emergency Economic Recovery Act of 1981, and it created tax incentives, it slashed marginal rates, it gave tax credits, and it gave accelerated depreciation. It gave all kinds of incentives to invest once more in the United States. All the money had been put in tax shelters because it was too expensive to do business or to live in the US. That money came crawling out of the woodwork because it became cheaper to invest in the US and make a return and pay a lower tax than to have exotic tax shelters. The tax shelters tied up your money and kept it from being taxed, but they were expensive to create and run, so the incentives brought it all out. Russia had the same thing when it slashed its flat tax to 11%. Billions upon billions of dollars came flying out that they did not know they had, and it set off an economic boom. Of course, they mismanaged it and had problems, but nonetheless, you see where I am going.

We do not have the same policies that there were in the 1980's; indeed, we are going in the exact opposite direction. Ronald Reagan said the solution was less government, not more government. The new administration says the solution the more government, not less. We are having more regulation, there are massive bills being contemplated and passed, and it is creating uncertainty, creating regulation, and is going to stifle out the entrepreneurship in the US. You can say that as bad as it was, in 1983 we were coming out big time. I have a bad feeling that in 2009 we are going back in 2010. 2009 and the liquidity rally there was in the stock market may go back in and hibernate if the Fed has to eventually (and it will) have to raise interest rates and stop its 0% interest rate policy that Japan did. It did not get it anywhere, right? It is going to have to do that, and if there are no policies to invest in the United States, then we have serious problems. We heard today that we might need another stimulus package. We are talking about more infrastructure, maybe some job incentives - but no one is going to hire anyone for a job if you do not know if you will have to provide insurance for them or how costly it will be - if you are going to be taxed another $8,000 or 40% on what you provide if you do. I am not going to do that, and I know many small businesses who feel the same way. There is just too much uncertainty, and you cannot bet the company on just a tax credit when there is something much more serious that could take away many of your revenue streams or what you have already made. You cannot risk it, and it is not the right kind of incentive. You want to invest in your business and in America, not just do busy work and try to put band-aids on things. That is the way we have to do it, however, and what we have to live with for now.

This recovery is not a 1980's style recovery.

You cannot deny that we are having a recovery, but it is relative. If you came from zero, it is different from coming from another output. This was one of the worst shutdowns since the Great Depression. Even though the percentages may be impressive and comparable to other eras and recoveries, it is where we came from that makes the difference. Even though we are recovering, that makes this not a very strong recovery. The output factors we showed from Thursday were not that great, and they are not nearly what they were in the 2001 recovery. There has been analysis done of the 1980's recovery, and this is, at best, half the strength of that recovery.

There are many issues to deal with. This recovery is no doubt a recovery, but it is not the best we can do. As history has shown, we can try other tactics that get people to invest in the United States. I am very concerned that we are going to have this 10.2% rate go up to unprecedented levels in early 2010, maybe touching 10.8 or 11%. That seems totally off-the-wall, and some people could be howling with dismay. Even the people who think this is a bogus recovery just do not want to contemplate that kind of unemployment. I hate to be a downer, but we have to prepare for what may come. The key right now, and one of the things that is throwing everyone a curve, is the stock market and the reason it is up.

The stock market typically forecasts economic expansion. I believe in that, but there are times when that is not the case, such as when there is a tremendous amount of liquidity driving the market. There have been other times, no doubt, that the Fed is lowered rates to practically nothing and they had a bunch of money printed. Why then was the stock market recovery not indicative of an economic recovery? This time the money is not being used because banks are not lending money. There are stats everywhere showing what is and is not being lent, and the money is not getting out there, so it is being pushed into the financial markets. That makes this a bogus rally in terms of economic forecasts. It is just not that strong. There were times where it looked good, but now we see serious issues with the small caps. They are in trouble and breaking down, and they are the canary with respect to the economy. Stocks that are doing well are the exporters - those that are tied overseas. That is not going to help the companies that make the US great, and those are the small businesses that generate all of the jobs. We are going to have serious issues coming this year because this recovery is nothing compared to the strong recoveries we have had in the past. Thus, comparisons to the 1980's are not just wrong, but are horribly wrong.



VIX: 24.19; -1.24
VXN: 24.6; -1.24
VXO: 22.97; -1.57

Put/Call Ratio (CBOE): 1.02; +0.15. Not much downside but a big jump in put activity. Too quick on the trigger for the put buyers?

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

Bulls: 48.3%. Surprisingly holding steady for the second week after a drop from 49.5% two weeks back. Still a lot of believers in the rally, and that may be to investors' detriment near term as the market consolidates a bit more. Bulls have held in the 48% to 50% range for several weeks now though that will start changing some now, and that is for the better in terms of a renewed upside move. Still well over the 35% level that is the threshold for what is considered a bullish climate. It does not mean things are necessarily bearish; that takes a reading in the 60% range. Hit a high of 47.7% mid-June on the run from the March lows. Again, to be seriously bearish it needs to get up to the 60% to 65% level. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator.

Bears: 24.7%. A rise as expected, but not a surge despite the rather sharp, high volume selling to end October. Bears remains relatively low, hardly in excess numbers but not so low to start looking for a reversal. Last week 22.5%, and hanging around in the 23% range before that. Hit a low of 21.3% on this leg. Rebounding some from the big drop 31.1% and 35.6%. For reference, cracking above the 35% threshold considered bullish. Hit a high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


Stats: +7.12 points (+0.34%) to close at 2112.44
Volume: 1.878B (-9.19%)

Up Volume: 1.134B (-867.977M)
Down Volume: 678.705M (+457.841M)

A/D and Hi/Lo: Decliners led 1.14 to 1
Previous Session: Advancers led 3.56 to 1

New Highs: 80 (+30)
New Lows: 21 (-4)





Stats: +2.67 points (+0.25%) to close at 1069.3
NYSE Volume: 1.08B (-16.39%)

Up Volume: 509.025M (-593.706M)
Down Volume: 498.584M (+325.522M)

A/D and Hi/Lo: Advancers led 1.09 to 1
Previous Session: Advancers led 4.07 to 1

New Highs: 127 (+15)
New Lows: 39 (+7)




Stats: +17.46 points (+0.17%) to close at 10023.42
Volume DJ30: 181M shares Friday versus 211M shares Thursday.



SP500 and NASDAQ may end up leading the market. It looks like there is a consolidation when you look at the semiconductor index and the small caps. Those are the growth areas and they are in trouble. They are not ready to roll over and give back the entire rally; I do not think that is the case at all. The liquidity has not gone away. It is going to keep supporting the rally unless something devastating happens where it will not matter what money is or is not out there.

I think the market may go into a June-like correction or consolidation. It has had every opportunity to move higher, but it has not done so. Indeed, it was shedding shares on high volume to end October. It looks like that was the start of a corrective move and now the volume has dried up. We have bounced up and now we see how hard it breaks to the downside. I am looking for it to hold in a range and start moving somewhat laterally as it did in June. That would mean this is not the end of the world and the liquidity is still out there to prop things up. It will be one of two things. I think we are going to go into a correction toward the end of the year where the big-money funds play it safe and do not make any new bets to end the year. They will not drive the market higher, but things will pick up in the new year.
For now, leadership is still in good shape, and I see some buys there. There are always some struggling areas that we can take advantage of to the downside. It looks like there is that kind of dichotomy where you can play upside and downside a bit as the market chops through this. I will be looking for trades in the range and looking for bouncing up and down. There will always be those that go up or down regardless of what everything else does, and I will be looking at those as well.

We have been pulling back, as you know. We have been taking a few buys here and there, but now we will be able to shift gears and play the moves in the range. We are going to play some downside as well, and we will take what the market gives. We will not be able toll look at huge runs right now unless it breaks to the downside big time. If it does that, we will let it run and take those as far as they can go. I think it will be more like June, however, so we will just play the moves back and forth and take what the market gives. We will not have as huge of gains, but we can pile them up and make good money there. I will see you on Monday.

Support and Resistance

NASDAQ: Closed at 2112.44
2143 is the October 2009 range low
2155 is the March 2008 intraday low
2167 from the July 2008 intraday low
2168 is the September 2009, intraday peak
2169 is the March 2008 closing low (double bottom)
2177 is a low from March 2008
2191 is the October 2009 peak
2210 (from September 2008) to 2212 (the July 2009 closing low)
2275 - 2278 from the February 2008 and April 2008 lows

2099 is the mid-September 2008 closing low
The 50 day EMA at 2081
2070 is the September 2008 intraday low
2060 is the August peak
2048 is the early October 2009 closing low
2016 is the early August peak
1984 from late September
1962 is the bottom of the August 2009 range.
1947 is the October gap down point
1897 is the October post gap intraday high.
1880 is the June peak
1862 is the July peak
The 200 day SM A at 1802

S&P 500: Closed at 1069.30
1070 is the late September 2009 peak
The March/July up trendline at 1078
1078 is the October range low
1080 is the September 2009 peak
1101 is the October high
1106 is the September 2008 low
1133 from a September 2008 intraday low
1185 from late September 2008
1200 from the July 2008 low

The 50 day EMA at 1048
1044 is the October 2008 intraday high
The August peak at 1040
The early October 2009 closing low at 1025
The early August intraday peak at 1018
The November 2008 peak at 1006 closing 1007.53 intraday
992 is the August 2009 consolidation low
956 is the June intraday peak
944 is the January 2009 high
935 is the January closing high
932 is the July peak
930 is the May peak
The 200 day SMA at 925
919 is the early December peak is bending

Dow: Closed at 10,023.42
10,120 is the October 2009 peak
10,365 is the late September 2008 low
10,609 from the Mid-September 2008 interim low
10,963 is the July 2008 low

9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak
The 50 day EMA at 9717
9654 is the November 2008 high
9625 is the October 2008 closing high
9620 is the August 2009 peak
9430 is the early October low
9387 is the mid-October peak
9116 is the August low
9088 is the January 2009 peak
8985 is the closing low in the mid-2003 consolidation
8934 is the December closing high
8878 is the June peak
8829 is the late November 2008 peak
The 200 day SMA at 8637

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

November 06 - Friday
Nonfarm Payrolls, October (08:30): -190K versus -175K expected, -219K prior (revised from -263K)
Unemployment Rate, October (08:30): 10.2% actual versus 9.9% expected, 9.8% prior
Average Workweek, October (08:30): 33.0 actual versus 33.1 expected, 33.0 prior
Hourly Earnings, October (08:30): 0.3% actual versus 0.1% expected, 0.1% prior
Wholesale Inventories, September (10:00): -0.9% actual versus -1.0% expected, -1.3% prior
Consumer Credit, September (2:00): -$14.8B actual versus -$10.0B expected, -$12.0B prior

November 12 - Thursday
Initial Claims, 11/07 (08:30)
Continuing Claims, 10/31 (08:30)
Crude Inventories, 11/06 (11:00): -3.94M prior
Treasury Budget, October (14:00): -$150.0B expected, -$155.5B prior

November 13 - Friday
Export Prices ex-ag., October (08:30)
Import Prices ex-oil, October (08:30)
Trade Balance, September (08:30): -$31.9B expected, -$30.7B prior
Michigan Sentiment-Preliminary, November (09:55): 71.8 expected, 70.6 prior

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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