- Stocks sift through data, rebound.
- Good on the headlines, not so good on the internals. What is new?
- Workers leave the workforce in droves. Are they still workers in that case?
- SP500, DJ30, RUTX look encouraging while NASDAQ looks problematical.
- Quieter week will let stocks do what they want to do.
Last week was a veritable fruit compote of data and reports. For the market, however, it wasn't the restaurant quality or fresh homemade kind with fresh fruits and berries. It wasn't even the name brand canned variety. No, it was the off-brand, 'top value' type where you guess what the piece of 'fruit' is, and the only sure thing you can truly identify is the sliver of maraschino cherry because it is red while everything else is a washed out grayish yellow.
On what planet is this fruit?
Or was it? With this market it is hard to tell what is good and what is bad, at least that is what you would conclude listening to the talking financial station bobble heads Friday. We heard the entire spectrum of a 'much better than expected' to 'bizarre' to 'internally horrid' jobs report. Thursday GDP was heralded as a 'turn' given 1.9% was expected but 2.8% was logged in Q3's first read. Yet, but for a big inventory build and exports jumping while imports faded, key areas of consumer consumption, business investment, and prices (tripled prior readings) were not good.
The stock market was hammered Thursday even with an ECB rate cut as stocks looked to be capitulating to rising churn and distribution on NASDAQ even as DJ30 finally broke to a new high. Was it the headline GDP that pushed it over the edge?
Friday the jobs report headlines, the ones the Fed's Bullard reads, provided a second shock to QE craving stock investors.
First GDP stronger and now jobs. Futures tumbled. But then, lo, they recovered into the open and stocks didn't slow with the bell. They rallied into midmorning, into lunch, into mid-afternoon, then shook off one bar of selling and sprinted higher into the close. The indices took back most and in some cases all of Thursday's loss. Glory be.
SP500 23.46, 1.34%
NASDAQ 61.90, 1.6%
DJ30 167.80, +1.08%
But GDP was stronger? But the jobs report swamped expectations, clearly stronger? Why, Santa Clause, why would stocks rally with that news?
Cindy Lou Who from 'How the Grinch Stole Christmas (or in today's PC parlance 'How the generally peace loving yet misguided person felt uncomfortable about another's expression of his religious beliefs so he tried to have them barred from public display during the winter holiday.')
Was it because the market was finally buying into the economic data inexorably getting stronger? After all, the PMI reports are moving higher and higher. Yet, those are sentiment indicators, not hard data. The PMI and ISM are sentiment surveys just as Consumer Confidence and Michigan Sentiment are surveys. People FEEL one thing, they often do another. That is the history of sentiment. Indeed, sentiment is often used as a CONTRARY indicator is it not?
This is one of ECRI's point in its recent critiques of the 'recovering' economy. ECRI issued a call five years ago that the US and indeed much of the western economies, were entering into a period of longer term stagnation with mini recessions occurring within periods of slow and even negative growth.
ECRI says the US entered a new recession in 2012 following the recovery of 2010.
Thursday's GDP report at 2.8% does not belie that call and does not indicate the economy is reaccelerating because of the data's history of revisions. During the Great Recession initial readings of 3% GDP growth were wholly wrong and were revised away because of faulty reads on economic data.
The current turn in manufacturing data does not belie that call. Indeed it is part of the faulty data. ECRI pioneered the use of those PMI indicators. The problem is, over the last few years the correlation between those numbers and the targeted goal of those numbers, production levels, has collapsed. Indeed, ECRI says those numbers are NEGATIVELY correlated with production. In other words, when those numbers rise, production is actually falling. This is the case in the US, China, and Germany.
What about the stock markets rising? They are of disconnected because of central bank action keeping rates low and pumping in liquidity to try and create a 'wealth effect.'
Thing is, as we have seen there is not much of a wealth effect. Indeed, there is no wealth effect. Why? Because it doesn't really exist in the first place. People feel good and spend because their jobs are secure, they feel there is growth ahead in their incomes. The stock market plays a role in overall contentment but it does not drive outright consumption. Just look at Michigan Sentiment for November, Friday posting the lowest read since 12/2011:
72.0 actual versus 75.3 expected, 73.2 prior
Add to that the notion that many people view the current stock market with high skepticism, as if it were . . . a bubble not built of real money. And it is not. It is built on the Fed pumping money it conjures. It is not, as the Nobel Prize winner says, no big deal, just a balance sheet entry that is balanced out on the other side by the IOU's and crappy mortgages, auto loans, student loans, and other debts the Treasury is buying via the Fed. The Fed is conjuring money, money that is not used in the economy but is floating the stock market and other financial assets.
The outcome? ECRI, Roubini and others point to what I have pointed to for years: Japan. It is in a 20 year depression now and we are following its footsteps exactly in terms of bailouts of huge institutions that should have failed, government cronies getting direct government assistance, zero percent or virtually zero percent interest rates forever (9 years in the US).
Jobs Report Breakdown
So . . . with that backdrop, what was so bad it was good about the jobs report in terms of causing stocks to rally?
Participation Rate: 62.8% versus 63.2% in September. 35 year low, the lowest since March 1978. That was when the US was in the Carter years and the economy was Les Miserables. Some industries were fine, e.g. the oil industry. It was in a massive boom post the early 1970's oil embargos. We are purportedly in the FIFTH YEAR of recovery and the participation rate is at levels matching the last horrid recession prior to the present one? Are you serious? Does ANYONE with a rational mind think that with these kind of numbers we are in a recovery?
Leaving the Workforce: 932,000 left the workforce in October, the THIRD largest on record. Again, with things SO GOOD, why would anyone leave the workforce? But they are, they are.
91.5M working age, able people are out of the workforce, an all-time record.
Unemployment rate: 7.3% versus 7.2% prior. Typically in a recovery you do see the unemployment rate rise as more people come back to the workforce looking for work but not all find jobs. Well, that is NOT the case in October. It was the worst of times.
Massive defections from the workforce which typically lowers the unemployment rate thanks to a lower denominator: fewer in the pool makes the percentage of those still working larger. UNLESS, however, the number of jobs falls as well. If the number of jobs lost offsets the number leaving the workforce, then the unemployment rate rises. The worst of both worlds: fewer workers, even fewer jobs. That is what happened in October.
The Part-Time effect:
Workweek: Slipping back to 34.4 from 34.5 prior. Heading in the wrong direction for hiring . . . at least for full-time hiring, that is. A stagnant and slipping workweek even as the economy supposedly improves. That is the part-time hiring.
Where the jobs are: Leisure rose 53,000. Retail rose 44,000. Those two equal all the other areas combined. Low pay, part-time jobs, just what this 'recovery' with ACA on top is noted for.
Full time jobs lost: 623,000. After a heralded 691K gain in September, October pushes them out.
GDP averaging 1.7% year/year. Even the most left apologist economist Marc Zandi said Friday this does not support 200K jobs. But, alas Marc, that is the LEAST of our problems.
Dollar: Dollar still surging. 1.3363 versus 1.3424 versus 1.3520 versus 1.3475 versus 1.3518 versus 1.3489 versus 1.3583 versus 1.3735 versus 1.3747 versus 1.3787 versus 1.3802 versus 1.3803 versus 1.3779 versus 1.3783 versus 1.3682 versus 1.3677 versus 1.3528 versus 1.3524 versus 1.3565 versus 1.3544 versus 1.3520 versus 1.3524 euro.
Bonds: Exploded downside. 2.75% versus 2.60% versus 2.64% versus 2.66% versus 2.60% versus 2.62% versus 2.55% versus 2.54% versus 2.51% versus 2.51% versus 2.51% versus 2.52% versus 2.49% versus 2.51% versus 2.61% versus 2.59% versus 2.68% versus 2.73% versus 2.69% versus 2.68% versus 2.66% 10 year.
Oil: 94.58, 0.38.
Gold: 1284.60, -17.90. Selling off again on the news of the week.
MARKET INTERNALS and STATS
Stats: +61.9 points (+1.6%) to close at 3919.23
Volume: 1.895B (-16.19%)
Up Volume: 1.511B (+1.11B)
Down Volume: 405M (-1.475B)
A/D and Hi/Lo: Advancers led 3 to 1
Previous Session: Decliners led 3.46 to 1
New Highs: 153 (+74)
New Lows: 58 (-2)
Stats: +23.46 points (+1.34%) to close at 1770.61
NYSE Volume: 736M (-9.25%)
A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Decliners led 3.51 to 1
New Highs: 118 (-2)
New Lows: 112 (+15)
Stats: +167.8 points (+1.08%) to close at 15761.78
Friday was upside and fairly convincing in terms of SP500 and DJ30 as they were never in any real danger in the first place. SP500 jumped off the 20 day EMA while DJ30 jumped off the 10 day EMA to a new closing high.
RUTX looks great with its bounce off the 50 day EMA. Even SOX looks good with its tap of support at the 50 day EMA and bounce.
NASDAQ and SP400 on the other hand are not that convincing. Their patterns were miming each other's and while they bounced, the move leaves them somewhat in no man's land. NASDAQ is at the upper channel line. It can recover, and if the other indices rally it will likely follow. That is what happens when there is a rotation of leadership; the prior leaders don't necessarily tank, they just lose their mojo, following along at a distance.
The key is how leaders hold the line. Thursday saw many purge but also many hold the line. Friday saw some rebounds, but also some that didn't do anything. Still good patterns, but this week will tell whether the past week was just a hiccup before more upside or whether Thursday was an important downside break.
Big boys: AMZN bounced but less than convincingly. GOOG was up but not convincing as well. AAPL moved up off the 20 day EMA, still in its pattern. It looks as if it wants to make the break, but as with Neo in 'The Matrix,' something is holding it back.
Banks: Big day as interest rates shot higher. JPM jumped 4.5%. BAC 3.7%. TCBI 3%. Some are in good patterns such as TCBI. Not all are.
Industrial machinery continues its travails. CMI looks ready to roll over. CAT is languishing at the bottom of its range as is DE.
Oil and gas: Good recovery as SPN jumped, PTEN bounced off the 10 day EMA. SLB bounced back over the 20 and 10 day EMA on strong volume.
Biotechs: Wounded. CELG is threatening a big breakdown. GILD bounced from the 50 day EMA but is pensive.
Still many solid individual names scattered across many sectors and many stocks that have rallied and are ignoring the selling: ATK, CCMP, FSLR, GNRC, TCBI, TITN, TSCO, ROST, COST, KORS. CAMP may try to pull it back.
VIX: 12.9; -1.01. VIX is still in the upper part of the lower range. What the heck does that mean? It can still slip some more if the market wants to continue Friday's bounce, hit the 2013 range bottom, and then the stage would definitely be set for some give back.
VXN: 14.67; -1
VXO: 12.75; -0.09
Put/Call Ratio (CBOE): 0.86; -0.06
Bulls and Bears:
Another 3 point jump in bulls and a further decline in bears pushes the divergence to very complacent levels. Last week I said the levels were dangerous. They added flashing 'danger' lights this week.
Bulls: 55.2% versus 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Backed off a hair form the sharp climb. Still a bit over-baked, but has been higher when selling bouts started in earlier moves.
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
Bears: 15.6% versus 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Bounced off the lows from March, April, May and August.
Background: 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.
It would be hard to top the past week in terms of data dumps. It will be by contrast data light. Fed-speak will not lighten up, however, as the FOMC members and presidents buck for position ahead of Yellen taking the reins. Everyone listens to every word, puckers or unpuckers their posteriors based upon the comments, but knowing that it is really the head person who makes the decision. Thus Yellen will be in control and make the decisions. The new fear: she actually ADDS to stimulus as some are suggesting she will have to do. Apparently not all of the analysts at the big financial houses buy into the recovery talk. Indeed most of them likely KNOW it is all sitting upon a throne of lies.
No, not talking about President Obama, though . . .
It is good the market has most of the earnings and the heavy hitting economic data at its back. Now it can make the move it wants. NASDAQ has not made it to the 50 day EMA or the lower trendline, but RUTX and SOX have. Will that be enough or will NASDAQ need to make the pilgrimage as well? It would certainly clean out the pipes so to speak and allow for a new advance.
SP500 and DJ30 certainly look good and RUTX showed great action. Perhaps simply rotation in the market and a new rally ensues. We certainly have and found more good potential entry points on some good-looking stocks. We also found some stocks ready to roll over. But you can always find those in the market, and this one is not weighed down with patterns that look ready to crack open to the downside.
So, with $85B still in the bank thanks to a GDP and jobs report that were better on the face but not so solid on the inside (the throne of lies?), perhaps the market will find its 'just right' bowl of porridge.
Could be, but I like to worry sometimes and this is a good time to do it. VIX can fall a bit more, i.e. a market bounce, and then be set to rock upside. Bullishness is too high, bearishness too low. NASDAQ looks suspect. Enough to at least keep you honest.
I still don't like it, but I have not liked it before on other tests and the move continued on at an $85B/month clip. The idea is to check your emotions as soon as you can. We dumped several positions last week early and some more later. Some were shakeouts, but we are not too proud to get back in on a good pattern if it presents. That may just happen, and when good stocks make good moves, well, you know.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 3919.23
3922 is the upper channel line for the November 2012 to present uptrend.
3967 is the October 2013 post-bear market high.
Next major resistance is around 4100 as NASDAQ hits 13 year highs
3819 is the early October high
The 50 day EMA at 3814
3801 is the September 2013 high.
3797 is the November 2012 trendline
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 200 day SMA at 3491
The 2011 up trendline at 3460
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high
S&P 500: Closed at 1770.61
1775.22 is the recent all-time high
8.7% over the 200 day SMA, not so extended.
The 20 day EMA at 1747
1730 is the September 2013 peak
The 50 day EMA at 1719
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1695 is the December 2012 up trendline
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
1627 is the August 2013 low
The 200 day SMA at 1630
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
Dow: Closed at 15,761.78
15,798 the November 2013 high
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 10 day EMA at 15,625
15,542 is the May 2013 intraday high
The 50 day EMA at 15,381
15,318 is the June closing high
15,050 from the August 2013 interim recovery high
The 200 day SMA at 14,953
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
November 8 - Friday
Nonfarm Payrolls, October (8:30): 204K actual versus 100K expected, 163K prior (revised from 148K)
Nonfarm Private Payr, October (8:30): 212K actual versus 110K expected, 150K prior (revised from 126K)
Unemployment Rate, October (8:30): 7.3% actual versus 7.3% expected, 7.2% prior
Hourly Earnings, October (8:30): 0.1% actual versus 0.2% expected, 0.1% prior
Average Workweek, October (8:30): 34.4 actual versus 34.4 expected, 34.4 prior (revised from 34.5)
Personal Income, September (8:30): 0.5% actual versus 0.2% expected, 0.5% prior (revised from 0.4%)
Personal Spending, September (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
PCE Prices - Core, September (8:30): 0.1% actual versus 0.1% expected, 0.1% prior (revised from 0.2%)
Michigan Sentiment, November (9:55): 72.0 actual versus 75.3 expected, 73.2 prior
JOLTS - Job Openings, September (10:00): 3.883M prior
November 13 - Wednesday
MBA Mortgage Index, 11/09 (7:00): -7.0% prior
Export Prices ex-ag., October (8:30): 0.3% prior
Import Prices ex-oil, October (8:30): 0.1% prior
Treasury Budget, October (14:00): -$120.0B prior
November 14 - Thursday
Initial Claims, 11/09 (8:30): 330K expected, 336K prior
Continuing Claims, 11/02 (8:30): 2862K expected, 2868K prior
Trade Balance, September (8:30): -$38.8B expected, -$38.8B prior
Productivity-Preliminary, Q3 (8:30): 2.0% expected, 2.3% prior
Unit Labor Costs, Q3 (8:30): 0.8% expected, 0.0% prior
Natural Gas Inventories, 11/09 (10:30): 35 bcf prior
Crude Inventories, 11/09 (11:00): 1.577M prior
November 15 - Friday
Empire Manufacturing, November (8:30): 4.3 expected, 1.5 prior
Industrial Production, October (9:15): 0.2% expected, 0.6% prior
Capacity Utilization, October (9:15): 78.3% expected, 78.3% prior
Wholesale Inventories, September (10:00): 0.3% expected, 0.5% prior
By: Jon Johnson, Editor
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