Weak Jobs Report Too Weak for Stocks

MARKET SUMMARY:

- Weak jobs report too weak for stocks, not weak enough for the Fed, and the market sells.
- A last hour rumor/report from the Fed's designated leak reporter helps lift stocks from the lows.
- Gold sees no rate cut regardless of the Fed leaker.
- Defensive Blame Bush for what he left Obama? What about what Clinton left Bush?
- Index charts still look technically fit, but earnings can change that picture.


Jobs report: on the right track or a gut punch?

Obama: A step in the right direction Romney: A gut punch

Dueling speeches but the facts are the facts. 80K non-farm jobs on top of 77K the prior week (revised up from 69K). 225K for the entire quarter, the lowest since 2010. In a week that saw national manufacturing fall back into contraction where it has not been since 2009, I suppose it is fitting that job creation fell back to levels of the same period. The sad irony is, jobs creation never came close to mirroring the success of the manufacturing recovery. Indeed, the prior two years saw hiring fizzle after starting to pick up, but this time manufacturing is now down and June retail sales were the worst in 3 years with 0.1% growth. With manufacturing, a leading indicator (remember, it telegraphed the recovery) turned back to contraction, can the President really say the economy is on the right path because a lagging indicator is hanging on to historically weak levels?



He can say it, and he did, but he is wrong. There is no recovery in labor. The employment:population ratio held at 58.6%, down from 59.4% in June 2009 when the recession ended. The decade average is 63%. Going nowhere for three years. Instead, once more we had to hear (endure?) talk of how bad things were when he took over. Yes the housing crash compounded by outlandish and irresponsible spending was bad. As noted on Tuesday, however, Paul Krugman, the Nobel Prize winning Keynesian the administration loves, advocated a housing bubble in order to get over the tech and overall stock market crash set up at the end of the Clinton administration. And we all know the likes of Senator Dodd, Schumer, and Congressman Frank who advocated and quite frankly threatened mortgage companies and banks if they did not extend loans to constituents even as the Bush Administration called for reigning in Fannie and Freddie. Bush was not innocent; he advocated home ownership and spent like crazy with his Medicare Part D, but can Obama really call that out today as a cause of our problems when he has spent more in his term than all Presidents preceding him combined?


The three housing musketeers orchestrating a housing disaster.

I remember writing about the first couple of years of the Bush administration and how the economy was performing. I went through the litany of events that confronted the country during that time. On March 2000 the stock market topped thanks to major monetary policy blunders from Alan Greenspan (recall he flooded the economy with money pre-Y2K even as he hiked rates, pulled it ALL back in March, then raised rates with another 50BP kicker in May; the market pitched over and the economy finished falling into the recession that was starting under the end of the Clinton years). It was a monumental bubble and a monumental crash. In the aftermath there was virtually no investment in the US for 3 straight years. During that period we lost our technology edge and thousands upon thousands of tech jobs that went overseas in a brain drain and those jobs never came back.
Then there was the corporate malfeasance with Tyco's CEO plundering his company, Worldcom officers bankrupting that company, and Enron's smartest guys in the room epitomizing the height of corporate arrogance and then the depth of corporate collapse. That was followed by the 9-11 terror attacks JUST when the stock market was starting to turn the corner in a signal the recession was ending. That plunged us back into recession.




Remember, it was the housing market that remained strong throughout. Nesting, 'stay-cations,' and an abundance of easy money courtesy of Greenspan (at the urging of the likes of Krugman) was seen as the force that kept the economy from totally cratering given business was dormant after the beating it received at the hands of the Fed. Cisco's Chambers said at the time he had never seen the business cycle turn so fast from so good to so bad. Thousands of companies went bust and those that did not spent years eating the inventory build up accrued before the rug was pulled. It is no wonder we lost so many jobs overseas as companies were hesitant to invest and encounter the same troubles again from a Fed and government that could so easily spike the punch bowl and then take it away.


I guess we should have paid more attention to the man behind the curtain.


So as you see, it was not a situation of a simple decision to create the housing bubble out of nothing. It was the LAST lap of a race to the bottom so to speak as the Fed officials and the government in the form of the Congress and Executive tried to patch one policy misstep with another one. The tech crash was bad. The housing crash was simply a bigger bubble on top of that bubble. The current Fed stimulus gambit, similar to China's building binge, is another last ditch attempt to thwart another massive collapse, one that tried to happen in 2008 but that was propped up. As the Great Depression showed us, propping up only prolongs the pain. The Great Depression would have ultimately ended without WWII, but it would have taken another 10 years to do so.

That means the prognosis is not good for us now as we are trying to wind down wars and cut spending, but at the same time not freeing companies and entrepreneurs from massive new regulations in every aspect of business so they can truly grow us out of this mess. We used to laugh at the Eurozone's huge increase in regulations when the countries combined. They result of that overregulation is clear, but what is also sadly clear is that we are following in its footsteps. The clear, empirical evidence shows that their way does not produce equality, balanced budgets, quality healthcare, or decent levels of economic activity. We fought a war to break away from that system and now we are willingly going back? Is that a 'step in the right direction?'


Stocks see through the rhetoric, see no rate cuts, sell on weak data and not much economic hope.

Stocks saw through it all. Weak numbers again, back to 2010 levels, but not weak enough for the Fed to act. Futures flopped fairly hard as stocks opened lower and sold through lunch. Midmorning we posited the possibility of an afternoon run, but also noted that the indices were holding over the 10 day EMA, the near support level for a 'normal' test. Of course the test was a bit much for just one day though I do note it was nowhere near as negative as it was the prior 'test' of the breakout from the inverted head and shoulders.

The indices double bottomed and started upside off the second bottom with two hours left. Just when they were out of steam on a short bounce, the Wall Street Journal's Hilsenrath, the Fed's leaker of choice, issued a short narrative about the jobs report and what the Fed could likely do. The blurbs came across one at a time but it went like this: weak jobs increases likelihood of Fed action but doesn't ensure it. Fed hawks want to wait for more serious threats, but some officials are interested in bond purchases. That my friends is QE. There was a lot more, but that was the gist. It said NOTHING new but it was what the Fed wanted out there to help bolster the markets. 'Jawboning' as they used to call it when Greenspan talked for minutes and said nothing, similar to the governor in 'The Best Little Whorehouse in Texas.'


Oooh I love to dance a little sidestep, now they see me, now they don't . . .
'What did he say?' 'A definite maybe.'

Yes, a definite maybe but it was enough for the markets. The indices bounced, cut the losses, and looked pretty decent on the close above the 10 day EMA. In position to bounce next week, maybe after a bit more testing, but of course earnings will have something to say about that as the season cranks up and the warnings are running almost 5:1 over upside surprises. Makes sense: the economy is slowing down fast, heading toward ECRI's recession.



OTHER MARKETS.

Dollar. 1.2281 versus 1.2391 euro. Weak data but not enough for more stimulus. The dollar rallied. Typically the dollar falls on weak economic data but when everyone expects a Fed move, the lack of one is celebrated and built back into the price of a greenback. Also, don't forget that China is cutting rates, Europe is cutting rates, and the UK is printing money in its UK-TARP program. All of that makes the dollar look a bit greener and the dollar exploded higher for a second day after falling back to the 50 day EMA. It has now broken out again, clearing the late May highs.


Bonds. 1.54% versus 1.60% 10 year US Treasury. Bonds should rise as economic data craps out. Also, the hint the Fed might buy mortgage backed securities doesn't hurt. Bonds gapped upside but note they are STILL in the now 5-week lateral range, holding the break higher to an elevated level as they ride out the indecision with the Fed. Thing is, with the weak economic data OR the Fed action bonds are winners once again.


Gold. 1578.80, -30.60. Winning, as Charlie Sheen would spout, is not what gold is up to right now. It rallied to the top of its two month range, waited on the Fed, got the thumbs down, dove lower. Back through the 50 day EMA and likely moving back to 1550ish as it waits on the FOMC. Note it didn't take much solace from the Hilsenrad missive.


Still winning?

Oil. 84.43, -2.79. Oil faded from the 50 day EMA test, falling to the 20 day EMA. Weak economy so no need for oil. Moreover, the dollar shot higher so it takes less dollars to buy the same amount of oil. Good support for oil as it also sits on the early June two week consolidation. Depends upon what the Fed does because the US economy and the world economies stink.


TECHNICAL SUMMARY

Internals

Volume. NASDAQ +2.4%, 1.42B; NYSE -11.8%, 543M. Summer, Friday, holiday week, low volume. Not bad for a selloff, however.


Breadth. NASDAQ -2.6:1; NYSE -2:1. Stronger downside breadth but let's face it, in this environment that is just nothing.


THE CHARTS

SP500. Rallied to the May 2011 peak at 1370, paused, then sold back Friday. Undercut the 10 day EMA on the low but the late market move closed out SP500 just over that near support. You prefer to see the move occur over a few sessions, not just one, but this happened the third week of June on that 'test' and it held. Holding the 10 day EMA is good; but now the real test this week. 1344 is important (February 2011 peak) as you want to see SP500 put in a decent higher low to continue the move. It is set up, but those earnings are coming . . .


DJ30. All the way to the 50 day EMA on the session low but the Dow also rebounded late to close right at the 10 day EMA. A hold of the 50 day EMA would be good and we note it closed over the lower level of the support range as well.


NASDAQ. As with SP500, NASDAQ fell to the 10 day EMA in one session with a big step lower. Of course not as big as in June, but still no gentle 1-2-3 pullback. It did tap it on the low and rebounded to close. Continued low volume so no major dumping though in the summer and with such light trade it is more a game of support and leadership moves versus volume . . . in most cases. Holding over the June peak and that leaves NASDAQ in good shape to bounce if earnings come in well. Ironic. Techs were poor performers Friday, but the index overall looks good.


SP600. -1.23%. Fell back sharply from the solid move to the upper resistance range. A great move off the 200 day SMA and now a test. It could easily make the 10 day EMA (443) on this drop, putting it back at the next support range.


SOX. -2.50%. Chips continued their split action though overall they were roughed up Friday. Through the 50 day EMA as well as the 20 day EMA, falling to the support at 372ish. We said SOX was not strong, just following, and as soon as things started to hit the fan SOX was out the exit fast.


LEADERSHIP

Defensive in flavor as you would expect. Drugs/healthcare still performing, housing not bad, financials struggling. Many leaders are giving the pullback we wanted and thus we are looking for buys in drugs and the like, not to mention some strong stocks such as PCLN. Surprisingly, some metals held up.

Big names. AAPL took the day off but a great move on the week. AMZN shows a nice doji near the 10 day EMA. PCLN looks super on its pullback; looking at a new play there.

Drugs. Pulling back but orderly, unlike the indices. ABAX, AMRN, ARNA, NUVA, OREX. Not bad.

Metals. Surprising. FCX is testing the 50 day EMA break. STLD is sliding laterally after a good break over resistance. Others holding up as well.

Materials. LPX, MAS, CX (cement) all are pulling back in some form or another to test their moves.

Financial. Tried to check up on the session but about all they did was not sell further after gapping lower. JPM, BAC, C all gapped to a doji. Not too promising but we will see if they can gap back upside next week.


THE MARKET

SENTIMENT INDICATORS

VIX: 17.1; -0.4
VXN: 18.65; +0.22
VXO: 16.7; -0.47

Put/Call Ratio (CBOE): 1.09; +0.23


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 does not have the cash to drive it higher.

Bulls: 42.5% versus 38.7% versus 37.2%. What a rebound as bulls survived the sharp drop after the breakout, building as the market rebounded into the Fourth of July. Hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.5% versus 24.7% versus 25.6%. Still hovering around the 25% level, never getting close to the 35% level that is bullish. It is always the best signal of bulls and bears cross paths so to speak. Not bad given the bulls' action, but not the best signal. Over 35% is the threshold to be really be a good upside indicator. 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.


NASDAQ

Stats: -38.78 points (-1.3%) to close at 2937.33
Volume: 1.415B (+2.39%)

Up Volume: 287.08M (-407.78M)
Down Volume: 1.13B (+423.18M)

A/D and Hi/Lo: Decliners led 2.59 to 1
Previous Session: Decliners led 1.17 to 1

New Highs: 56 (-73)
New Lows: 29 (+12)


SP500/NYSE

Stats: -12.9 points (-0.94%) to close at 1354.68
NYSE Volume: 543M (-11.85%)

Up Volume: 469.12M (-428.55M)
Down Volume: 2.18B (+120M)

A/D and Hi/Lo: Decliners led 2.08 to 1
Previous Session: Decliners led 1.3 to 1

New Highs: 128 (-112)
New Lows: 10 (+1)


DJ30

Stats: -124.2 points (-0.96%) to close at 12772.47
Volume: 96.8M shares Friday versus 97.8M shares Thursday.


MONDAY

Some economic data later in the week but let's face it, most of the big news on the economy is out and investors will turn to earnings. Earnings start slow but pick up speed toward the end of the week as well.

The indices are set up in some pretty decent pullbacks and leaders are in good shape. As noted in our alerts, we went over the positions several times looking for those with weak links. We closed some, but we have gravitated toward stocks and sectors that are getting the money (drugs, healthcare in general, homebuilders, materials) and as they were holding up quite nicely we were not going to cut them off, at least on Friday. We had that choice because earnings do start slow next week and we can get a better view of investor sentiment toward earnings buy watching the reaction to the initial round that has basically no big names.

As noted, the indices are set decently and there is leadership. That leadership has held well even in the prior dip that tested the inverted head and shoulders breakout. While we expect them to at least do the same here, being defensive, earnings are a bit different beast. If investors sour on the outlooks, even good patterns and 'safer' defensive sectors can and will take hits. That is why we were really poring over the plays Friday to see what we wanted to close.

If the action starts to erode further, we will close out more and flip some downside plays on the burner. Don't want to try and ride out an earnings season we feel will disappoint in the raw numbers that will take stellar guidance to overcome. With this economic data, while hope springs eternal, it is a chance to take. Thus we see how they react early in the week and have the goal of sticking only with the strongest that continue their 1-2-3 type pullbacks for the upside.

Why so concerned this time around? Because we know profits are lower; companies have warned us about this. Also, if the numbers suddenly show that ECRI's recession call is indeed on point, stocks will lead the move and head lower first. It would take the Fed to act in order to reverse the action, but quite frankly, despite the afternoon 'leak,' the Fed doesn't want to act. That is why it leaked, pulling a 'Greenspan.' It wants to talk the markets through it without having to act. That won't offset weak outlooks. Further, it will TAKE a selloff to get the Fed to act given the 'improvement' in the jobs to 80K.

In sum, we like the patterns overall in the indices, and there are still some great pullbacks in the defensive leadership groups such as biotech drugs. We will look at those for new entries in the defensive category that can also make us money as they have been doing. The pullback is what we wanted with them. We will be ready to close existing positions that hack around, unable to build toward a move. If bad news hits, they are the first to go. Then we have some downside to play it as well, though likely the bottom falls out at once on some earnings worries, if that is going to happen, and the gaps are hard to play. If we see weak stocks breaking down, we pick up some positions downside and then when the news hits, they implode and make us money.

It is always so much fun when the Fed and government are nosing in. The market is showing resilience BECAUSE of that presence and the carrot of more stimulus. IF THE MARKET BREAKS DOWN that means it does not believe stimulus is coming and is factoring in a weak economy. That eventually brings the Fed in, but we don't want to ride it down waiting for the 'when' as in when the Fed will act.

Traveling Monday through Wednesday, checking out some companies as I love to do, so the reports will be cut back some, but you will still get the best analysis there is.

Have a great weekend!


Support and resistance

NASDAQ: Closed at 2937.33

Resistance:
2942 is the mid-June 2012 high
2950 is the mid-April closing low
2962 is the April 2012 low
3000 is the February 2012 post-bear market high
3024 is the gap point from early May
3026 from 10/2000 low
3042 from 5/2000 low
3076 is the late April 2012 high
3090 is the mid-March interim high
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
The 10 day EMA at 2922
2910 is the recent March 2012 low
2900 is the March 2012 low
The 50 day EMA at 2900
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2810 is the low in the shoulders
The 200 day SMA at 2801
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ


S&P 500: Closed at 1354.68

Resistance:
1357 is the July 2011 peak
1359 is the April 2012 low
1363.46 is June 2012 high
1371 is the May 2011 peak, the post-bear market high
1378 is the February 2012 peak
1406 is the early May 2012 peak
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
The 10 day EMA at 1351
1344 is the February 2011 peak
The 50 day EMA at 1342
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1309 is the right shoulder low from June 2012
The 200 day SMA at 1303
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high


Dow: Closed at 12,772.47
Resistance:
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
12,754 is the July intraday peak
12,716 is the April 2012 closing low
The 50 day EMA at 12,700
The 200 day SMA at 12,416
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak


Economic Calendar

July 2 - Monday
ISM Index, June (10:00): 49.7 actual versus 52.2 expected, 53.5 prior
Construction Spending, May (10:00): 0.9% actual versus 0.2% expected, 0.6% prior (revised from 0.3%)

July 3 - Tuesday
Factory Orders, May (10:00): 0.7% actual versus 0.4% expected, -0.7% prior (revised from -0.6%)

July 5 - Thursday
MBA Mortgage Index, 06/30 (7:00): -6.7% actual versus -7.1% prior
Challenger Job Cuts, June (7:30): -9.5% actual versus 66.7% prior
ADP Employment Change, June (8:15): 179K actual versus 105K expected, 136K prior (revised from 133K)
Initial Claims, 06/30 (8:30): 374K actual versus 385K expected, 388K prior
Continuing Claims, 06/23 (8:30): 3306K actual versus 3283K expected, 3302K prior (revised from 3296K)
ISM Services, June (10:00): 52.1 actual versus 53.0 expected, 53.7 prior
Crude Inventories, 06/30 (11:00): -4.270M actual versus -0.133M prior

July 6 - Friday
Nonfarm Payrolls, June (8:30): 80K actual versus 100K expected, 77K prior (revised from 69K)
Nonfarm Private Payrolls, June (8:30): 84K actual versus 105K expected, 105K prior (revised from 82K)
Unemployment Rate, June (8:30): 8.2% actual versus 8.2% expected, 8.2% prior
Hourly Earnings, June (8:30): 0.3% actual versus 0.2% expected, 0.2% prior (revised from 0.1%)
Average Workweek, June (8:30): 34.5 actual versus 34.4 expected, 34.4 prior

July 9 - Monday
Consumer Credit, May (15:00): $9.5B expected, $6.5B prior

July 11 - Wednesday
MBA Mortgage Index, 07/07 (7:00): -6.7% prior
Trade Balance, May (8:30): -$48.9B expected, -$50.1B prior
Wholesale Inventories, May (10:00): 0.3% expected, 0.6% prior
Crude Inventories, 07/07 (10:30): -4.270M prior
FOMC Minutes, 6/20 (14:00)

July 12 - Thursday
Initial Claims, 07/07 (8:30): 375K expected, 374K prior
Continuing Claims, 06/30 (8:30): 3300K expected, 3306K prior
Export Prices ex-ag., June (8:30): -0.5% prior
Import Prices ex-oil, June (8:30): -0.1% prior
Treasury Budget, June (14:00): -$43.1B prior

July 13 - Friday
PPI, June (8:30): -0.6% expected, -1.0% prior
Core PPI, June (8:30): 0.2% expected, 0.2% prior
Michigan Sentiment, Preliminary July (9:55): 73.5 expected, 73.2 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com