Monday, April 07, 2014

The Storm Hits NASDAQ and RUTX Again


- The storm hits NASDAQ and RUTX again, this time taking a toll on SP500 and company as well.
- Jobs Report called Goldilocks scenario, but market decided it certainly was not just right.
- Low paying jobs dominate yet again. No improvement until there is investment, and investment relies upon stable policy that promotes risk taking. Right there are two risks: the usual risk of an endeavor with the added risk of government sanction if you are successful.
- VIX elevated its trading range but not at critical stage. Worth watching.
- Still some great upside sectors and stocks, if they can hold up against growth's selling.

A storm is coming! I know.
The Terminator, 1984

Jo, Bill! It's coming! Bill: It's already here . . .
Twister, 1996.

As the boy who took Sarah Connor's picture in the first 'Terminator' said, viene la tormenta (a storm is coming). The market had the look, we started shifting to downside plays, and Friday the NASDAQ selling that showed up two weeks back resumed. As Bill Paxton in 'Twister' responded to Phillip Seymour Hoffman's warning a storm was on the way, it's already here.

A bit melodramatic, but they fit. Similar to Ron Insana's article Friday regarding the 'shock' about HFT trading, where he quoted Captain Renault in the great movie classic 'Casablanca': "I'm shocked, SHOCKED to find that gambling is going on here!'

Captain Renault is shocked about the gambling, then collects his winnings.

The session started to off decently. Futures up ahead of jobs. Jobs came in not too hot, not too cold, kind of Goldilocks just as some on the morning financial stations proclaimed. Futures jumped nicely. Stocks started nicely higher. Immediately, however, the move came under pressure. They sold into the first half hour but bounced. Never made it back to the opening high, however.

The storm hit rather ferociously. Even SP500 and SOX, holdouts to the upside during the prior selling and indeed through much of the Friday session while NASDAQ burned, flared off 1% to 2% losses by the close. Volume swelled, downside breadth exploded on NASDAQ as it lost a startling 110 points.

SP500 -23.68, -1.25%
NASDAQ -110.01, -2.60%
DJ30 -159.84, -0.96%
SP400 -1.59%
RUTX -2.35%
SOX -2.81%

Volume: +22% NYSE, +27% NASDAQ. Slightly above average on NYSE, but surging above average on NASDAQ.

A/D: -4.9:1 NASDAQ but just -1.85:1 NYSE.


Jobs Report in the eye of the beholder.

192K jobs. The Joe Lavorgna 275K estimate was more 'all is well' nonsense as Mr. Lavorgna continues to confuse QE-induced market gains as an economic indicator versus market gains based upon investment in the US that will lead to economic growth.

192K versus 195K expected, 197K prior (from 175K).

January and February revised up 15K and 22K, respectively.

Unemployment rate: 6.7% versus 6.6% expected, 6.7% February. If you use historical participation rates before the Great Recession created massive new entitlement classes, unemployment would be 9.7%. Hey, below 10% right?

The views on the report ran the extremes of the spectrum. David Gregory on MSNBC claimed the jobs report points to a 'robust recovery.' This is the same network that postulated a black hole swallowed the flight from Malaysia. CNBC's Steve Leisman actually took a more hawkish posture, vehemently disagreeing with guests who said the 192K jobs was a good report. Leisman huffed that the economy needed to product 300K AND 400K new jobs per month in order to show any kind of serious growth.

Sadly, as we noted with the Factory Orders, ISM, trade, etc. show no significant US investment, and it is investment to grow businesses that results in new jobs that are the better jobs versus the predominant service sector, lowest pay scale jobs this recovery produces. Indeed, the Friday report showed manufacturing, the second highest paying sector, LOSING jobs.

Ironically, and proving the point, CarMax reported results Friday that missed expectations, BUT KMX also announced the savior of stock prices, a $1B stock buyback. If you cannot please them with earnings, use the funny money in this recovery to buy your price higher. That is the new corporate capital investment.

Average Hourly Earnings fall to unchanged, Workweek rises 0.2.

In February hourly earnings jumped 0.4% while the workweek fell. Much was made of the longer workweek, how that accounts for thousands of new jobs with each 0.1 tick. If it were REAL that might be interesting. We said last month, however, hourly earnings jumped because of paid hours not worked due to weather while the workweek fell because of the weather. This month was a reversion.

Hourly earnings: 0.0 versus 0.2% expected, 0.4% February

Workweek: 34.5 versus 34.4 expected, 34.3 February

Clearly this was makeup time for hours not worked during February. Had to work more hours to make up for the lost work in February. Cause and effect as our old friend the Frenchman would say.

I drank too much wine, now I must . . .

Other numbers called important: 500K came back to the workforce as participation rose to 63.2% from 63.0%. People not in the workforce fell by 300K to a still huge 91,030,000.

Yet, the unemployed ROSE 27K to 10.486M. How? Not enough jobs. Cannot absorb the new people, the long-term unemployed. Add the unemployed to the out of the workforce and you get 101.5M people, or 32% of the population not working. It is even a larger proportion of the working age population.

Another telling statistic: Part-time worker growth. Still outpacing the
full-time as the below chart shows:

Indeed, temps rose 29K. Temp workers are in the lower end of the pay scale along with Education and Health, Leisure and hospitality, and retail. Those areas, however, added the most jobs at 34K, 29K, and 21K, respectively.

At the same time the highest pay scale sectors barely added jobs. Financial services, manufacturing, and information added just 2K jobs (manufacturing, as noted above, lost 1,000).

Of the jobs created it is the same story we have told for several years: low end, low pay. It is no wonder citizens are not spending as the used to because their incomes are not what they were and there is still quite a bit of worry about the future.



Euro/Dollar: Stronger all week.

1.3701 versus 1.3712 versus 1.3760 versus 1.3794 versus 1.3779 versus 1.3752 versus 1.3748 versus 1.3788 versus 1.3823 versus 1.3842 versus 1.3794 versus 1.3776 versus 1.3831 versus 1.3930 versus 1.3925 versus 1.3907 versus 1.3858 versus 1.3907 versus 1.3870 versus 1.3869 versus 1.3872 versus

Dollar/Yen: Lost some ground Friday after a very strong week for the dollar.

103.24 versus 103.92 versus 103.76 versus 103.68 versus 103.21 versus 102.81 versus 101.24 versus 101.99 versus 102.26 versus 102.25 versus 102.25 versus 102.42 versus 102.51 versus 101.40 versus 101.75 versus 101.29 versus 101.67 versus 102.71 versus 102.90 versus 103.24 versus 103.33 versus

Bonds: Down week for bonds, falling to the 50 day EMA. Friday, however, a big bounce given the data and US market selling.

10 year: 2.73% versus 2.79% versus 2.80% versus 2.75% versus 2.73% versus 2.71% versus 2.68% versus 2.70% versus 2.75% versus 2.73% versus 2.77% versus 2.78% versus 2.77% versus 2.67% versus 2.70% versus 2.65% versus 2.65% versus 2.72% versus 2.77% versus 2.78% versus 2.79%

Oil: 101.14, +0.85.

Gold: 1303.40, +18.80. Started a modest rebound Wednesday after two straight weeks of selling.


Stats: -110.01 points (-2.6%) to close at 4127.73
Volume: 2.573B (+27.19%)

Up Volume: 315M (-326.94M)
Down Volume: 2.29B (+900M)

A/D and Hi/Lo: Decliners led 4.88 to 1
Previous Session: Decliners led 2.37 to 1

New Highs: 86 (-19)
New Lows: 59 (+32)

Stats: -23.68 points (-1.25%) to close at 1865.09
NYSE Volume: 694M (+22.4%)

A/D and Hi/Lo: Decliners led 1.85 to 1
Previous Session: Decliners led 1.45 to 1

New Highs: 180 (+6)
New Lows: 68 (+7)

Stats: -159.84 points (-0.96%) to close at 16412.71


DJ30 never did confirm the DJ20 transports new high with a closing new high of its own. It did not really damage itself as it closed between the 10 day and 20 day EMA. it simply did not have the strength for a new closing high on this move and was eventually dragged lower in the afternoon.

NASDAQ was gutted, breaking the bottom of its uptrend channel, undercutting last week's low, and closing at the lower trendline recently formed off the November 2012/March 2013 lows.

RUTX managed to hold last week's low, but it splintered the 50 day EMA and the uptrend channel yet again, the second such big selloff is as many weeks. Hanging around in a bad neighborhood for sure.

SP500 was finally torn from its new high after holding out much of the session at or above the 10 day. It fell further but found support at the 20 day EMA.

SOX dittoed SP500, falling from a decade-plus high to the 20 day EMA. Very important to watch because it led the rest of the market higher. If it rolls over the rest of the market likely does the same.

SP400 dove down from its upper channel line. Not necessarily surprising though its bounce off the 50 day EMA last week gave it the chance of a breakout. That was blown away in the storm.

SOX, SP500, SP400, and even DJ30 are still decent in terms of their positioning in their trends, but they were sold hard, matching that one-day event in early March.


Many stocks were lower but it was along the same lines seen already, just magnified.


Social media: FB, YELP


Even electronics were hit: SWKS, LSCC, MU

Steel: Held up decently. AKS, STLD

Utilities: Of course they were up in a defensive play.

Financials lower but not dumping: JPM, WFC. It was not all candy and nuts: BAC, STT.


VIX: 13.96; +0.59
VXN: 18.79; +1.83
VXO: 13.42; +0.69

VIX is elevated the past two months, range-trading at a higher level than in all of 2013. You watch for major tops when VIX rises as the stock market continues posting gains. Thus the elevation in the trading range is something to watch but at this juncture it does not rise to the level of great concern.

Look at the long-term chart of VIX compared with SP500. From 1996 ('irrational exuberance' utterance from Greenspan) VIX bumped higher and continued to trend higher into 2000 as the stock market trended higher. Compare that with the period 2003 to mid-2007: stocks rose smartly but VIX faded. Not until the second half of 2007 did VIX rise as the stock market rose. In both instances a major selloff occurred only when VIX started to rise significantly off its status quo levels as stocks rallied.

The recent rise in VIX does not approach these levels, at least not yet. As noted, it should be watched.

Put/Call Ratio (CBOE): 0.94; +0.06

Bulls and Bears:

Bulls bounced right back up: 50.5 versus 54.7 versus 52.0. Nothing like a sharp pullback to rethread the bulls' heads.

Bears breaking higher: 18.6 versus 7 of 8 weeks at mid-17.

Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.

Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 50.5 versus 54.7
52.0% versus 54.6% 53.5% 46.5% 41.8% 45.9% 53.1% 57.6 56.1 60.6% 61.6% 60.0% 58.2% 57.1% 55.7% 53.6% 52.6% 55.2% 52.6 49.5 42.3% 45.4 46.4% 44.3% 42.3% 37.1% 37.1% 38.1% 43.3%.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 18.6 versus 17.5%
17.4% versus 15.1% 17.2% 17.2% 17.4% 17.4% 15.3% 15.1 15.3% 15.2% 15.2% 14.0 14.3 14.3% 14.4 15.5 15.5% 15.6% 16.5% 18.5 21.6% 20.6% 18.6% 20.6% 21.6% 22.7% 23.7% 23.8% 21.6%.

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.


Friday we did not do that much despite the selling. As noted Thursday we were relative balanced heading into the jobs report. Upside plays took some hits but many are holding a support level, not bad after this kind of selling. Indeed, in many of the sectors on the NYSE stocks are quite intriguing upside. Energy, metals, industrial minerals, materials, chemicals, even some tech not only held up but worked on very nice patters. Yes the selling dragged most stocks lower, but as we looked through dozens of sectors, many were fine.

Now we see what kind of follow through there is next week. Ugly Fridays often lead to further selling through the early week, typically through Tuesday. That type of selling can yield a pretty sharp rebound, though typically just a relief move for those with broken patterns. SP500 is still in position to deliver a follow through session to the rebound from two Fridays back if it does not fall too much farther. If those stocks we see in solid patterns continue to work on them through any early week selling they could help lead a rebound in the market and good moves for themselves.

Our plan is to use any further downside early next week to see if we can bank some downside gain then watch for an oversold bounce to set up. A new trend is trying to establish itself, at least on NASDAQ and RUTX, and it is not an upside trend. The other indices, not really though they can be dragged lower. At the pace of the Friday decline, the market can get oversold quickly.

We have some new downside plays on the report as there are stocks that resisted the selloff but have weak patterns. If they make the move we can play some but knowing that after another couple of downside sessions through Tuesday a bounce can come. Likely just a relief move on NASDAQ that sets up some more downside, but again, there are many plays out there holding up just fine despite the NASDAQ and RUTX woes. Perhaps they don't break down and provide some leadership immune to the selling. Perhaps. I don't like the market's prospects even now for a sustained run. Keep your eye on SOX. If it breaks we would view that as something of the canary that the NYSE indices will break as well.


NASDAQ: Closed at 4127.73

4131 is the March 2014 low
4209 is the November 2012 trendline
The 50 day EMA at 4219
4246.55 is the January 2014 peak
4277 is the March lower gap point
4289 is the July 2000 recovery high
4306 is the upper channel line for the November 2012 to present uptrend.
4372 is the March 2014 high

4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
The 200 day SMA at 3918
3855 is the November low
3819 is the early October high
3801 is the September 2013 high.
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.

S&P 500: Closed at 1865.09

1883.57 is the recent all-time high hit in early March.

The December and January highs at 1848
The 50 day EMA at 1848
1844 is the December 2012 up trendline
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
1768 is the December 3013 low
The 200 day SMA at 1755
1730 is the September 2013 peak
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
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
1646 is the October 2013 low just before the surge into early 2014
1627 is the August 2013 low

Dow: Closed at 16,412.71

16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
16,466 is a lower trendline off the 11/2012 low

16,257 is the January 2014 low
The 50 day EMA at 16,242
16,179 is the November 2013 peak.
15,739 is the December 2013 low
The 200 day SMA at 15,710
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
15,318 is the June closing high
15,050 from the August 2013 interim recovery high
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)

Economic Calendar

April 4 - Friday
Nonfarm Payrolls, March (8:30): 192K actual versus 195K expected, 197K prior (revised from 175K)
Nonfarm Private Payr, March (8:30): 192K actual versus 205K expected, 188K prior (revised from 162K)
Unemployment Rate, March (8:30): 6.7% actual versus 6.6% expected, 6.7% prior
Hourly Earnings, March (8:30): 0.0% actual versus 0.2% expected, 0.4% prior
Average Workweek, March (8:30): 34.5 actual versus 34.4 expected, 34.3 prior (revised from 34.2)

April 7 - Monday
Consumer Credit, February (15:00): $14.3B expected, $13.7B prior

April 8 - Tuesday
JOLTS - Job Openings, February (10:00): 3.974M prior

April 9 - Wednesday
MBA Mortgage Index, 04/05 (7:00): -1.2% prior
Wholesale Inventorie, February (10:00): 0.5% expected, 0.6% prior
Crude Inventories, 04/05 (10:30): -2.379M prior
FOMC Minutes, 3/19 (14:00)

April 10 - Thursday
Initial Claims, 04/05 (8:30): 325K expected, 326K prior
Continuing Claims, 03/29 (8:30): 2843K expected, 2836K prior
Export Prices ex-ag., March (8:30): 0.6% prior
Import Prices ex-oil, March (8:30): -0.2% prior
Natural Gas Inventor, 04/05 (10:30): -74 bcf prior
Treasury Budget, March (14:00): -$106.5B prior

April 11 - Friday
PPI, March (8:30): 0.1% expected, -0.1% prior
Core PPI, March (8:30): 0.1% expected, -0.2% prior
Mich Sentiment, April (9:55): 81.0 expected, 80.0 prior

By: Jon Johnson, Editor
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Jon Johnson is the Editor of The Daily at

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