- Stocks try to add to Thursday rally, fail miserably.
- Jobs numbers supposedly good but the market action appears to belie that view.
- Other markets suggest stronger growth. Well, almost.
- Jobs report heralded as a signal of recovery, but the inside numbers show this is not the kind of recovery anyone wants.
- Thursday and Friday show buyers and sellers still battling it out at support, but unless there was some other influence Friday, that kind of reversal is not a good upside indication.
Sellers step back in as investors not wowed by jobs report, future prospects.
As good as Thursday looked with NASDAQ, SP600 and SP400 jumping off key support at the 200 day SMA, Friday negated that move. Now it was not a total washout. SP400 (midcaps) sold hard, but they also easily held above the 50 day EMA. The small caps held some of their two-day move but are basically back at the 200 day SMA test range from the prior week. NASDAQ, well, it is smack dab on the 200 day SMA yet again after a week of testing and the Thursday upside break. SP500 and DJ30 failed at the 50 day EMA and find themselves as well testing the support of the past week.
Disappointing, but not a complete repudiation of the Thursday move. True, but it is hard to spin such a clear rejection of that prior day's move.
Thing is, the session was set to start out just fine. Futures were higher with some spillover from Thursday's move and then the jobs report juiced the upside a bit more with a top line beat and 84K upside revisions in the prior two months.
Unfortunately, the market reverted to the 'high on the opening tick' playbook. After a higher open stocks faded. They faded into midmorning. They tried to bounce. The bounce failed and stocks sold to the closing bell. Mirror image of Thursday's higher open followed by a session-long rally. Risk on, risk off. Buy today, sell tomorrow. Jobs report good, jobs report maybe not so good. Regardless of the reason, stocks blew most of the Thursday advance, closing near session lows.
SP500 -13.39, -0.94%
NASDAQ -37.93, -1.26%
DJ30 -139.46, -1.05%
SP600 -0.52%
SOX -1.89%
That leaves them right back where they started from before Thursday, but after a surge and purge the upside move typically loses strength.
A good try, but out of gas?
OTHER MARKETS
The stock market pulled the old surge and purge action. Well, not on Friday; it was pretty much no surge and purge the Thursday gains. Other markets, however, at least 2 out of 4, appeared to take the data as good overall.
Dollar. 1.2829 versus 1.2936. This time the dollar did break up the bearish pattern. A break through the 50 day EMA and run to the 200 day SMA. There is still a lot of overhead resistance, but after a week of lateral movement the dollar jumped sharply. Seemed to believe the economic data was a positive.
Bonds. 1.72% versus 1.72% versus 1.69% versus 1.72%. I left the series from the past four sessions so you can see how bonds are walking a straight line at least on the closes. Friday bonds gapped lower on the jobs report; you would expect that if jobs were really showing a good economy. But as the session progressed bonds gave up the entire move. Maybe not such a great report. Regardless, bonds are narrowing in the range still, holding over the 200 day SMA to close the week. A break is coming and it might be the election that does it.
Gold. 1675.40, -32.70. Gold appeared to take the data seriously, implying a stronger economy means less need for the Fed pumping liquidity and thus less inflation pressures.
Gold swan-dived to support from the mid-August interim high just over the 200 day SMA. Impressive dive.
Oil. 84.86, -2.23. Oil slumped through its recent lows in the weeklong lateral consolidation. There is some support at 84. After that it is 80.50ish. Oil was not buying a strong economy. Some of the explanations for the weakness were laughable, e.g. Bloomberg stating that Sandy was causing the price to drop because there would be more supply restored soon. Really? What about that decline from the peak in mid-September, long before Sandy was even a twinkle in the weatherman's eye? No, too much oil, not enough economic activity, and that means lower prices.
TECHNICAL SUMMARY
Internals.
NASDAQ
Stats: -37.93 points (-1.26%) to close at 2982.13
Volume: 1.796B (-2.71%)
Up Volume: 474.95M (-1.055B)
Down Volume: 1.36B (+1.014B)
A/D and Hi/Lo: Decliners led 2.75 to 1
Previous Session: Advancers led 1.81 to 1
New Highs: 73 (-23)
New Lows: 53 (+3)
S&P
Stats: -13.39 points (-0.94%) to close at 1414.2
NYSE Volume: 696M (-0.43%)
A/D and Hi/Lo: Decliners led 2.3 to 1
Previous Session: Advancers led 3.35 to 1
New Highs: 365 (+9)
New Lows: 65 (+2)
DJ30
Stats: -139.46 points (-1.05%) to close at 13093.16
Volume: The silver lining is a modest dip in volume on both NYSE and NASDAQ. Trade was, however, still well above average and thus whatever modest fade in trade was not really significant. Stocks jumped Thursday on stronger trade then fell Friday on still strong trade. Meaning? A wash as the buyers and the sellers fought to even again on the sum of those two days.
Breadth. NASDAQ downside jumped to -2.75:1 versus 1.8:1 on Thursday's upside. Some stronger downside action. NYSE at -2.3:1 was solid but couldn't match the prior session's 3.3:1. This is pretty much a push as well; both days were significantly higher than anything in the prior week.
THE CHARTS
SP500. Rallied through the 50 day EMA on the open than quickly gave that move up along with most of Thursday's move. SP500 is right back over 1400 support and of course it can again find support there. The problem is the sellers successfully negated the Thursday surge to the 50 day EMA. Thus SP500 failed at resistance Friday, and that leaves it vulnerable to forming that right shoulder to that potential head and shoulders pattern starting in August.
NASDAQ. Gapped upside in a continuation move to Thursday, but then reversed early and sold all the way back to the 200 day SMA on the close. The pattern is an engulfing pattern and a negative though volume was not huge. Obviously the ability to hold the 200 day SMA or this general level next week and renew the upside will be key if a rally is still to ensue. Always tough to blow a good move but NASDAQ at least left itself in position to make the break higher if this proves just to be an end of a crazy week move.
SP600/SP400. SP400 was the impressive index Thursday and on Friday it showed it still was a solid candidate to lead. Yes it sold back but it also held the 20 day EMA on the close, above the 50 day EMA and of course well above the 200 day SMA it tested toward on the intraday lows the past week. It looks as if it was just caught up in the storm and left itself in position to move higher.
SOX. Fell right back from the 50 day EMA but as with the midcaps it left itself some breathing room by holding over the 10 day EMA. Can put in a higher low here and at least rally further upside in the range but still not looking at SOX for any leadership.
DJ30/DJ20. Rallied to the 50 day EMA and again faded, but unlike Thursday the Dow faded all the way back to the recent lateral move. Holding over 13,000 support but as with SP500 its pattern remains overall weaker than NASDAQ and the small and midcaps.
DJ20 again rallied, but as it hit the high from two weeks back it was pushed negative. Not a collapse but disappointing. Lower volume, however, and still in position to continue higher if this was just a 'Friday thing' ahead of an uncertain weekend for stocks.
LEADERSHIP
Big names. Again no aid from the big names. AAPL didn't even pretend to move higher, diving over 3% and below the 200 day SMA on the close. AMZN tried the rally but gave it up, closing flat; actually not a bad feat for the session. IBM rolled over hard from the 200 day SMA. GOOG gapped upside and reversed to flat. As you can see some big names held their ground while others took more diving lessons.
Industrials. After solid Wednesday and Thursday moves the industrials suffered some selling. JOY faded from an intraday 200 day SMA break. CAT gapped and reversed to close just below the 50 day EMA. The bigger names such as UTX and MMM just don't look healthy.
Financial. Hung in decently. BAC followed the Thursday surge with a gap to a doji and a 1+% gain. JPM faded but is in its range and continuing uptrend. Same with GS. WFC is struggling. Overall, decent given the session.
Metals. Up Thursday, melted Friday. FCX back to the 50 day EMA to try again. AKS gave up over half the Thursday gains. SID gapped and then reversed. Still, they are working on patterns, e.g. SCHN.
Retail. PCLN exploded higher through the 200 day SMA. Hit the September peak and stalled but a blistering move. LULU continued the run but then closed just below the 50 day EMA. PII shed some gains but not much. Pretty much the strong remained solid even with a pullback on the session.
THE ECONOMY
TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html
Low quality, low paying jobs dominate those jobs created. We ask the question again, are a million low paying part-time jobs better than a lower number of quality full-time jobs?
Nonfarm Payrolls, October (8:30): 171K actual versus 125K expected, 148K prior (revised from 114K)
13 years of this level of job creation to recover to pre-recession levels.
2% less people working than when the current President took office.
Nonfarm Private Payrolls, October (8:30): 184K actual versus 130K expected, 128K prior (revised from 104K)
Unemployment Rate, October (8:30): 7.9% actual versus 7.9% expected, 7.8% prior
Hourly Earnings, October (8:30): 0.0% actual versus 0.2% expected, 0.3% prior
Average Workweek, October (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)
Who is getting the jobs?
We heard it again today from the administration and the pundits on the financial stations: the labor force has fallen because the baby boomers, those 55 and up (though not all BB's are at 55 yet), are retiring. That intuitively makes sense because that is the traditional time to retire and the usual path.
These are not traditional times. Thanks to the Fed and its QEternity, interest rates are negative in real terms (adjusted for inflation). Thus what any of the 55+ crowd have left after the financial collapse won't earning anything outside of the stock market or other riskier markets. Thus they have to make up the difference somewhere.
They do so by getting jobs. They may WANT to retire but they feel they CANNOT retire because of the decimation of their retirements and the inability to earn interest income. So, they go to work. Indeed, so much so that in October the 55+ segment received 68% of the jobs created.
And over time, i.e. in this recovery:
20 to 24 year old unemployment rate: 13.2%
What kind of jobs?
Look at the average workweek:
Average Workweek, October (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)
The workweek is falling again, revised lower in September and missing expectations of a rise in October. How can you have more jobs but less hours worked? Because the jobs created are virtually all low-paying part-time jobs.
After the September jobs report we showed that the bulk of the jobs were part-time (582K of the 837K); the U6 reading of unemployed (includes those less than fully employed because of economic conditions, i.e. they cannot find the fulltime job they want) held steady at 14.7%. It dropped a fraction to 14.6% in October, but that simply means the older people looking for work are not seeking full-time jobs. Makes sense.
How much are they getting paid?
Take another look at the average hourly wage:
Hourly Earnings, October (8:30): 0.0% actual versus 0.2% expected, 0.3% prior
No growth, and with inflation that means negative real growth.
From the BLS: October hourly $19.79 from $19.80 mo/mo. Year/year: 19.79 versus 19.57. Now that is a higher reading (+1.1%) but that is the LOWEST yearly increase ever.
After the September jobs report we showed how the jobs created were dominated by the lowest end of the wage scale. Fully two thirds of the jobs created are at the bottom of the pay scale at $7.69 to $13.83. That is how the average hourly rate falls even as more jobs are created.
Summary: What this, as well as the other jobs reports mean.
The administration touted the job creation on the stump. It has to; there is nothing else good in the numbers to talk about. Wages were lower because most of the jobs are part-time and the low end of the wage scale going to seniors who have to re-enter the jobs market because of decimated retirement accounts and no way to produce income on what is left. Do you think the people would cheer so loud if they knew that the majority of the jobs created were desperation jobs that seniors were forced to take at low pay scales simply in order to survive? You know they would not.
THE MARKET
SENTIMENT INDICATORS
VIX: 17.59; +0.9. Of course VIX bounced right back up, but it did not recover anywhere near all the Thursday loss and closed below the 200 day SMA.
VXN: 19.95; +1.51
VXO: 17.87; +0.97
Put/Call Ratio (CBOE): 0.92; -0.03
Bulls versus Bears
NOTE: The data was not updated this week due to Sandy and the market closure. Data may be available later this weekend.
Bulls: 41.5% versus 45.7% . Down from 54.2% five weeks back when the first downleg in this selling started. That is a fairly sharp decline. Not at levels considered bullish (35%), but getting darn close in a hurry. Never came close to the 60% to 65% bullish levels that flash a warning sign. Background: Undercut 35%, the threshold for bullishness, in early June. As noted, 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: 27.7% versus 25.5%. Hung at 25% for close to two months. Now it is moving up some. Just some. Has to get to 35% to be significantly bearish to suggest an upside rally. March and April saw lower lows in the 21% range. On the last run never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. 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.
MONDAY
More data next week and more earnings, but most of the data the market considers important (ISM, regional PMI reports, jobs report) are out and more or less priced into the markets.
The major focus will be the election and who wins and what that means for stocks. The prognostications are all over the map as to who wins and what it means for the market based upon who wins. All conjecture.
What I can tell you is that the indices are at a key level. They consolidated there and tried to move higher Thursday. The other side of the market did not agree with that move and shoved it right back Friday. That shows us that investor are still more or less evenly split at this key level. Gee, looks like the election picture as well does it not?
To us that shows the market is ready to move, but it is waiting to for that next piece of data to move it. It could have been the jobs report, but it was not. Buyers could not advance the market and sellers entered. To us it means the election and getting it decided. As to who wins I don't know if that makes more a difference than the certainty. I have my views as to what a win for each means in terms of unlocking funds business is holding for investment and pricing stocks for the future. I think if there is change that will be viewed as positive. However, certainty, as noted, plays a role in stock pricing.
Either way, the key is the reaction at this support. The Friday action was bearish even with what we were told is good jobs news. I could get very esoteric as to why good news was considered bad and tie that into the market, but that is getting extremely far on the limb of conjecture.
Given the push back by the sellers, we picked up some downside positions. There are more of those setting up thanks to the test of resistance and turn back lower. Thus we will be ready with some more of those in addition to some upside. The fade Friday pushed some solid stocks back a bit without any real damage, and that puts them in the category of possible upside leaders if the markets again find purchase at support.
Have a great weekend!
Support and resistance
NASDAQ: Closed at 2982.13
Resistance:
2988 is the July 2012 high
2999 is the bottom of the August 2012 consolidation
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 and several other price points
The 50 day EMA at 3053
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low
Support:
The 200 day SMA at 2979
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2910 is the March 2012 low
2900 is the March 2012 low
S&P 500: Closed at 1414.20
Resistance:
1422.38 is the prior post-bear market high (March 2012)
1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
The 50 day EMA at 1426
1433 from August 2007 closing lows
1438
1440 from November 2007 closing lows
1464 is the June up trendline
1463 is the September closing high
1466 is the September closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007
Support:
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
The 200 day SMA at 1379
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
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
1266 is the June 2012 base low
Dow: Closed at 13,093.16
Resistance:
The 50 day EMA at 13,285
13,297 is the April 2012, prior post bear market high
13,300 to 13,331 is the August 2012 post-bear market high
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak
Support:
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 200 day SMA at 12,985
12,971 is the early July 2012 high
12,754 is the July intraday peak
12,716 is the April 2012 closing low
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
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
Economic Calendar
Nonfarm Payrolls, October (8:30): 171K actual versus 125K expected, 148K prior (revised from 114K)
Nonfarm Private Payrolls, October (8:30): 184K actual versus 130K expected, 128K prior (revised from 104K)
Unemployment Rate, October (8:30): 7.9% actual versus 7.9% expected, 7.8% prior
Hourly Earnings, October (8:30): 0.0% actual versus 0.2% expected, 0.3% prior
Average Workweek, October (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)
Factory Orders, September (10:00): 4.8% actual versus 4.5% expected, -5.1% prior (revised from -5.2%)
November 5 - Monday
ISM Services, October (10:00): 55.0 expected, 55.1 prior
November 7 - Wednesday
MBA Mortgage Index, 11/03 (7:00): -4.8% prior
Crude Inventories, 11/03 (10:30): -2.045M prior
Consumer Credit, September (15:00): $10.0B expected, $18.1B prior
November 8 - Thursday
Initial Claims, 11/03 (8:30): 370K expected, 363K prior
Continuing Claims, 10/27 (8:30): 3250K expected, 3263K prior
Trade Balance, September (8:30): -$45.4B expected, -$44.2B prior
November 9 - Friday
Export Prices ex-ag., October (8:30): 0.7% prior
Import Prices ex-oil, October (8:30): 0.2% prior
Michigan Sentiment, November (9:55): 83.0 expected, 82.6 prior
Wholesale Inventories, September (10:00): 0.4% expected, 0.5% prior
By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved
Jon Johnson is the Editor of The Daily at InvestmentHouse.com
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