Monday, November 08, 2010

Jobs Data Tops Expectations

- Jobs data tops expectations by a long shot but cannot move the market. It doesn't sell off either, and that is just as important.
- Decent jobs report is far from 'very good.'
- Luxury retailers signaling an economic recovery?
- Riding the move higher with existing positions and some new ones while keeping an eye out for a pullback.

Despite big gains on the week, no sellers showed up, not even some profit taking late Friday.

Elections, the FOMC decision on Quantitative Easing II, and on Friday the October jobs report. Quite a week, and it continued Friday with Non-farm payrolls rising 151K, more than doubling the 60K expected. Prior months were revised higher as well with September down just -41K versus the -95K previously reported. All told, revisions accounted for 100K fewer jobs lost than previously reported for September and August. Private non-farm payrolls were the bulk of all the gains, rising 159,000, easily doubling the 60K expected. September jumped to 107K versus the 64K previously reported. Excellent news, but the unemployment rate held at 9.6%. Even though 220-260K people left the workforce, the unemployment rate held steady. You would have expected it to move up if those people left the work force, but the extra jobs offset the smaller work pool. An important aspect of the report was the average workweek. It came in at 34.3 versus 34.2 expected where it has held the last several months. That means employers are working their employees a bit more, but it is not at the level that would start precipitating new buying of employee services.

With that kind of news, you would expect the market be ginned up and ready to explode higher on the open. Indeed, it did help reverse futures. Looking at the SPY, futures were negative early in the morning before that data was released. Not severely negative, but down 10-13 points on the Dow futures. After the data came out, they were 10-13 points positive on the Dow futures, but it was not all a cakewalk. They came back to flat, and many times the indices traded negative on the session. Looking at the SPX, there was that up and down volatility, but the range was 1221-1227. It was a very flat day. Stocks did close higher, but that is merely because they bumped upside in the last 10-15 minutes of trade. That in itself was interesting.

What was going on? We had a supposedly "very good" jobs report as some of the talking heads on the financial stations were staying. No, it was not a very good jobs report. If you listen to any experts or the economists who talked afterward, they said 150K is pathetic. It is great that it has turned up a bit, but we have seen that happen before. Earlier in the year it turned up only to roll right back over. This shows we cannot keep up with the job losses by any stretch. As one economist said, when we get up to 350K or 400K a month we can start making a difference. At the current rate, even if we stayed at 150K, it would take us 7 years to get back to the pre-recession level of unemployment. That puts it in perspective.

The interesting thing was the market's reaction to a "very good" jobs report. It did not do a lot. Why not? The SP500 soared on Thursday given the Quantitative Easing after the market and investors digested what the Fed did on Wednesday afternoon. It did not do the same thing on Friday. The market is saturated with good news in the short term. It has had three results this week, and apparently they were all results that the market liked. The market had an excellent week to the upside. Maybe it is a bit saturated with news in the near term. Consider also that the DXY0 rebounded on Friday. Good economic data helped it rebound after being trounced on Quantitative Easing news. We had that working against stock prices. The dollar acts as a governor on stock gains when it advances. That is the case right now because the market and investors are viewing anything that requires more Quantitative Easing as a positive.

Quantitative Easing is the quickest way for the stock market and other markets to rise. The economies are slow, and hundreds of billions are being pushed into the economies. They are not going to be used, so they will be pushed into the financial markets and that causes them to rise further. That is the fastest way for the markets to rise, so investors are happy when they see that. Why were they happier with that than with growth? They know that growth will be much slower and provide much lower and slighter returns than the hundreds of billions of dollars pumped into the financial markets. Growth is weak right now. It would take years to gin up the type of growth we need to drive the stock market the same way the hundreds of billions in Fed funny money can do. The relationship is usually that good growth means good stock prices. It does not necessarily mean stock prices as good as we would have had if we just used Quantitative Easing. The better jobs report aided the dollar bouncing. In the mind of investors, that reduced some of the likelihood that the Fed's newly announced Quantitative Easing would be as necessary as the Fed believed it was before Friday. Therefore, as the dollar moved up, it acted as something of a governor on the price of stocks on the day. That is in addition to the fact that the market may just be saturated near term.

The market did not soar to the upside; it did that on Thursday. As I said, it might be a bit saturated. The important thing is that the market did not sell off either. Look at this week the market enjoyed. It has been rallying, it moved laterally a bit, and then the angle of attack shot through the roof with the Quantitative Easing II and the election. With a week like that in addition to having so much good news, the market probably wants to pull back. Indeed, it was trying to pull back before the jobs data came out, but the jobs data popped it up. Not impressively, as noted, but it held it up. Even with that, you would expect that they would sell the market off late in the day, but they never did. It came back off the open, but it moved laterally the whole session. Indeed, it broke the pattern you would expect and rallied into the close. You would expect short-term profit taking, but the market bounced up into the close, turning all of the indices positive. NASDAQ, < +0.1%; SP500, +0.4%; Dow, +0.1%; SP600, +0.4%; SOX, +0.6%; NASDAQ 100, -0.05%.

That is nothing bad. They did not lose any ground. Totally saturated, but no one could sell off the market. That shows the power of the Fed's new Quantitative Easing. Money being dumped into the financial markets is much more powerful than anything else you can throw at the markets. Although it is a hoax and a short-term thing. Once everyone on the planet figures out it is not going to work, then you have serious problems. Then you wish you had a market rallying on growth (such as China) versus a market rallying on fake money that is being pumped into the system, not used, and put into the financial markets. That is a big dichotomy there. Right now, our market is running like crazy, and you are going to take advantage of it as I have. Running higher, taking gain, moving in, getting more positions and then letting them run higher. That is how it is working. I was expecting something of a selloff later in the session, but it did not happen. Again, that shows the power of the Fed's Quantitative Easing.


Dollar. The big rally, the big selloff. It started the third leg of the selloff, but it may be a false breakdown. It broke below some support, and maybe it reverses here. The "very good" news with respect to the jobs on Friday actually gave the greenback some backbone. It moved back above the mid-October lows. Maybe we have a double-bottom false breakdown. It might try to rally. The dollar looked decent (1.4035 Euros versus 1.4216 Thursday). If you have not followed currency before, that is a huge move against the Euro. Then again, the dollar has been beaten about the head and shoulders over the past six months, so a little bounce is understandable.

Bonds. Bonds were slaughtered on Friday. They gapped sharply lower after trading higher Thursday on Quantitative Easing (10 year 2.54% versus 2.47% Thursday). Bill Gross said that the Fed's Quantitative Easing 2, 3, and 4 will end the 30-year bull run in bonds. Looks like it may be doing that. It tried to set up an ABCD pattern, but it is breaking down. It is not looking very good for bonds. Why would it not be good for bonds with the US purchasing so many of them? You can figure that one out. You would think bonds would rally with the US purchasing more assets, but the bond market is seeing through what is going on. It knows there is not much upside left.

Gold. Gold was moving higher once more. A big day on Thursday when it, too, absorbed the import of the Fed's Quantitative Easing II. It was not up as big on Friday, but it was not a session to sneeze at ($1,397.70, +14.60). Big move by gold to an all-time high.

Oil. Oil was moving again to the upside on Friday, though its moves were more truncated than its prior gallop north ($86.86, +0.37). Oil had a tremendous week, breaking out above resistance not only the January resistance, but also clearing the April 2010 twin peaks. It may want to test a bit before it waves goodbye to those levels.

Other markets were running on the Quantitative Easing move. Friday pitched a monkey wrench into the mix with the dollar rallying on the stronger jobs data, but it likely will not be a move that changes the trend.


Volume. Volume fell 15% to 2B shares on NASDAQ. It fell 10% to 1.2B shares on the NYSE, but that was not bad volume at all.

Breadth. Breadth matched the session at a meager 1.2:1 on the NASDAQ and 1.4:1 on the NYSE. That matches what happened on the session, which was nothing.


SP500. The big move was on Thursday with SP500 breaking through the April peaks. It has now just extended that slightly. There is no real resistance near term. It could bounce up and then come back for a test. A big move, and it will need to test, but the market will test when it is ready. How many times have you seen moves get impossibly extended either up or down only to continue? That is what the market does. Yes, we will watch for a correction. You have to do that, but you cannot run your life thinking things will roll over tomorrow. It has not indicated anything suggesting a rollover other than that it has had a lot of success. Success can beget more success. Until it shows signs of turning over, we cannot panic and worry about that.

NASDAQ. NASDAQ gapped to the upside on Thursday, and it did not go anywhere on Friday. It had a bit too much of its own success.

SP600. Small caps continued to the upside but were not able to push through the April peaks. Still lagging, but a very good move on the session and still looking at those April peaks. It was one that could bump up here, pull back and test, and that would give the large cap indices a chance to pull back and test their break above the April peak. Maybe that would be the correction or test to bounce to the upside.

SOX. Semiconductors had a very good week as well. Good move Wednesday, big gap Thursday, and it added a bit on Friday. Still below their April peaks. It could rally up a little more, start to test and correct. The other large cap indices that have moved through the April peak could use that as cover to come back and test the April peak they just broke through.


Financial. I said financials had to join to party for the SP500, and last week they certainly did. JPM moved up Wednesday, a big surge Thursday. It made another surge on Friday, moving above the 200 day EMA. It has not taken out the September peaks or the August peak, but it is looking strong. That has been aiding the advance in the SP500. GS had a very strong day on Friday, up 2.8% on big volume. Really picking up speed to the upside; I am enjoying the run in that stock. EWBC has some of the same action, although it finished off the session on the day. It came back, but EWBC is enjoying a good week and it just gave back some gains on the upside.

Technology. AAPL lost a little ground on the day, but it had a good week nonetheless. AKAM was one of the leaders. It sold off, but it has rebounded as well. Back to a new high this week. FFIV was another leader that sold off, gapped up on earnings, and continued to the upside. They are still well in the advance mode, but techs look a little tired compared to some of the other sectors. They have been forging the way higher. Now some of the other areas are trying to step up as the techs look tired.

Industrial. Industrials also look tired as well, but they managed to come back. CAT looked to be forming a rounded top, but there is nothing like Quantitative Easing II to send it higher. It broke it out of that pattern without issue. DE is moving up, but it looked a little choppier and tired as well. It was moving ahead of the other industrial stocks. While they were starting to correct, DE kept moving higher, aided by the corn reports and those showing that prices will continue to move to the upside.

Metals/Coal. FCX post another good session on Friday, though it did close off its high. MEE has feelers out there for a strategic move. Whenever you hear that, it is read "sale," and the stock shot higher. That ginned up the options quite a bit and got the implied volatility up. We were able to bank some very solid gains on that. Steel stocks have been very weak, but they came to life on Thursday. Nothing like Quantitative Easing to bring commodities to the fore.

Retail. There is an old adage that luxury retail is the last to go out and the first to come back in when things get better. SKS is galloping higher. It had a very good week last week in addition to a solid 2-3 weeks prior. M is not luxury, but it has some high-end things. It is moving to the upside as well. You would expect them to be out in front when things are getting better, but that is not really the case. Are they out in front of anybody? ROST is a discounter, and it is screaming to the upside as strong as SKS. COST has a huge run already, tested, and now it is trying to run again. Am I saying we are going to have a recovery because the luxury retailers are doing well? Does it mean we are not going to have a recovery because the discounters are still doing well? DLTR is still moving higher. I do not think this tells us that the economy is getting better. I think it tells us that the customer is a little pent up and ready to spend some money over the winter holiday.

TGT said it was selling a lot of goods, but the focus was still necessities, not discretionary. Many teen stores suffered slower same store sales announced this week. Teens rely on jobs and mom and dad to get them into the stores; they don't have help from either. This both is and is not an economic-based move. People want to spend something on Christmas after having terrible times since the financial crisis started in the fall of 2008. They want to spend some money, so stocks are moving up ahead of that. The other aspect is simply money moving into all areas of the stock market because of the massive liquidity. Dollars are being stuffed into the financial markets, and they are rallying. The fact that consumers may be interested in buying more for their families at Christmas is only adding to the upside already engendered by the excess dollars in the stock market.

Any sector that sees additional sales over last year (because buyers have some pent up demand) are going to outperform. They have the 1-2 punch of getting the financial stimulus, and they have something to get the prices up in addition to that. Quantitative Easing tends to makes all stocks a leader eventually. Money rotates through the market from one sector that rallies high and needs to rest and test, and it moves onto another area and surges that up higher as well. We are going to have leaders as long as the smoke and mirrors game can continue.



VIX. Volatility is holding at a level hit in mid October. Since it is at a very low level, people are saying we can expect a pullback in the market. We could the market is overbought near term. It has had a lot of good news, it has been moving higher, and it has not come back for any kind of correction. That is one thing and VIX the another. Its correlation with the indices is somewhat broken right now. It was very much moving in lock step: It would rise, and the indices would fall. When it got low, you could anticipate a bounce back. That is not happening now. It can get low for a long time, and the market can still rally. During this point in 2004, 2005, 2006, and 2007, the market was rallying to the upside. Volatility was very low. It started to rise in 2007. The market was starting to top, and eventually it did top and cascaded lower. That is how volatility works when it gets very low and there is no correlation to the market. It tends to show a top is coming when it advances as the market advances as well. The relationship is broken right now, so do not anticipate that low volatility automatically means a correction is coming. I am not saying a correction is not coming, but using volatility to determine that is incorrect.

VIX: 18.26; -0.26
VXN: 18.67; -0.87
VXO: 17.76; -0.57

Put/Call Ratio (CBOE): 0.69; -0.06

Bulls versus Bears:

The CROSSOVER from August is long gone but it did its job.

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: 46.7%. Rising again, up from 45.6% last week (45.1% versus 47.2% prior). Steady rise since hitting 29% where bears overtook bulls back in early September, but now somewhat indecisive with SP500 moving laterally. Still below the 65% level considered as bearish, above the 35% level below which is considered bullish. Where you would expect for a rally such as this one. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. After peaking at 53 on this move the bulls lost some nerve, falling to a new low post- July 2009. Once again bulls peaked out near the 50% level. Bulls have bumped at 50ish since late August 2009, falling to 45ish and then rebounding. 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.

Bears: 24.4%. Holding steady at 24.4% for the second straight week. A bit of caution remains for the bears even as the market rallies (22.0% versus 24.7% the prior weeks). Down from 28.3% a month back. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level considered bearish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more 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: +1.64 points (+0.06%) to close at 2578.98
Volume: 2.026B (-15.53%)

Up Volume: 1.118B (-773.452M)
Down Volume: 861.374M (+233.654M)

A/D and Hi/Lo: Advancers led 1.25 to 1
Previous Session: Advancers led 2.97 to 1

New Highs: 270 (-89)
New Lows: 30 (-6)





Stats: +4.79 points (+0.39%) to close at 1225.85
NYSE Volume: 1.241B (-9.89%)

Up Volume: 817.953M (-417.696M)
Down Volume: 406.392M (+271.204M)

A/D and Hi/Lo: Advancers led 1.38 to 1
Previous Session: Advancers led 5.18 to 1

New Highs: 796 (-187)
New Lows: 67 (-10)




Stats: +9.24 points (+0.08%) to close at 11444.08
Volume DJ30: 211M shares Friday versus 234M shares Thursday.



Things quiet down considerably next week. Nothing on Monday. Tuesday is wholesale inventories. That is a yawner, although it will be interesting to see if they are building or not. Due to Veteran's Day, Wednesday brings the usual suspects with others that are normally seen on Thursday. On Friday there is Michigan Sentiment and that will drum up some interest as well. The big three have already come and gone. Quantitative Easing is out there. The real question is whether we will get any type of correction in the market. Friday was a perfect time for the market to take some profits, and it did not even do that. The reason, in my opinion, was Quantitative Easing. Investors know all this money is going to be there, and they just were not ready to take any profits. That does not mean there will not be a correction or a test. We had tests even with Quantitative Easing.

Once the euphoria runs out, the market is extended. After all, it has run from August through late October. Starting in November, it has been goosed even higher. The angle of attack has gone from 45-degrees to 90 straight up. It cannot sustain that kind of momentum, and it will have to test and/or correct. I will be looking for a pullback. The problem is there should have been some profit taking late in the session and there was not.

Investors did not want to get out. They wanted to hold over the weekend and hold off of these gains that occurred for the week. Substantial upside, and they did not want to sell out because they are anticipating more upside. With that, I would anticipate more upside as well. That means we are going to be riding the move higher with our current positions and some new ones we have been taking. We will continue to look for more as money rotates through the market. After all, that action Friday was pretty solid. That does not mean you should not keep your eye out for a pullback. That is not the case even though everyone thinks the Fed has given the green light to nothing but upside from here to eternity. That the never the case. The market cannot go up forever, and it has had an increased angle of attack to its already steep rally over the prior two months. Like they said in Field of Dreams, you have to keep an eye out for that one in your ear. As soon as you start feeling that nothing can go wrong, that is usually when something happens.

With that Friday action, I want to see how it starts out on Monday. Stocks could very well continue to the upside. If we see money rotating into other areas, those will provide places where we can move in without buying into extended stocks. That does not mean we will look away from every stock that has moved up well. Remember, a lot of stocks have gap to the the upside, and they have shown breakaway gaps. A breakaway gap is one that tends to continue to move in the direction of the gap. We definitely want to take advantage of that if possible.

Our game plan is to look for stocks that are not as extended and look for other stocks that are in good position to move higher on the idea that Quantitative Easing will trump most everything out there. I still do not want to load up with full positions until we get some kind of test or correction that will give better entry points on good names. That does not mean we will not get entry points on some stocks that are not household names or have not been market leaders prior to this time. They could be getting money rotated their way and then start to the upside and make some nice money for us. We will not ignore them, but we have to be a bit careful. You have to watch for that one in your ear, but know that the Fed has everyone's back with a big "L" for now. That means $600-900B in liquidity. Have an excellent weekend.

Support and Resistance

NASDAQ: Closed at 2578.98

2725 from July 2007 interim peak
2735 from late 2007 interim peak
2862 is the 2007 peak

2550 from May and June 2008 peaks
2535.28 is the April 2010 intraday peak
2530 is the April 2010 closing peak
2518 is interim peak from April 2010
The 18 day EMA at 2496
2482 is the recent October peak
2434 is the May interim peak and the 78% Fibonacci retracement of the April selloff.
2425 is an interim peak from May 2010
The 50 day EMA at 2405
2382-2395 from 2008
2324-2370 is a range of resistance from early 2008
2341 is the June 2010 peak
2320 to 2326.28 is the January 2010 high
2319 from the September 2008 peak
2310 is the August 2010 peak
The 200 day SMA at 2309

S&P 500: Closed at 1225.85
1313 from the August 2008 interim peak

1220 is the April 2010, post-bear market peak is breaking
The 18 day EMA at 1187
1185 from late September 2008
1174 is the May 2010 high, 78% Fibonacci retracement of April peak
1170 is the prior March 2010 high
1156 is the Sept 2008 low
The 50 day EMA at 1144
1151 is the January 2010 peak
1133 from a September 2008 intraday low
Bottom of the January 2010 consolidation 1131 to 1136
1129 to 1131 is the June and August 2010 peaks
The 200 day SMA at 1124
1119 is the early December intraday high
1114 is the November 2009 peak
1106 is the September 2008 low
1101 is the October 2009 high and the recent May and June 2010 interim peaks
1084 to 1080 (September 2009 peak)
1078 is the October range low
1070 is the late September 2009 peak as well as several other peaks and valleys even in 2010. Important level.
1065 is the May flash crash intraday low.
1044 is the October 2008 intraday high AND the February 2010 low
1039 to 1040 are the May, June, and August 2010 lows

Dow: Closed at 11,444.08
11,734 from 11-98 peak

11258 is the April 2010 peak
11,205 is the April closing high
The 18 day EMA at 11,158
11,100 from the 7-08 low
10,963 is the July 2008 low
10,920 is the recent May high
The 50 day EMA at 10,903
10,730 is the January 2010 peak
10,609 from the Mid-September 2008 interim low
10,594 is the June 2010 peak
The 200 day SMA at 10,547
10,496 is the November 2009 high
10,365 is the late September 2008 low
10,285 is the late December consolidation peak
10,260 from the May and June 2010 interim peaks are breaking
10,209 is recent August 2010 low
10,120 is the October 2009 peak
9938 is the August 2010 low
9918 is the September 2008 peak
9855 is the early September peak in its lateral range
9835 is the late September 2009 peak AND the February 2010 low
9829 is the September 2008 closing high
9774 is the May 2010 intraday low

Economic Calendar

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

November 05 - Friday
Nonfarm Payrolls, October (08:30): 151K actual versus 60K expected, -41K prior (revised from -95K)
Nonfarm Payrolls - Private, October (08:30): 159K actual versus 60K expected, 107K prior (revised from 64K)
Unemployment Rate, October (08:30): 9.6% actual versus 9.6% expected, 9.6% prior
Hourly Earnings, October (08:30): 0.2% actual versus 0.1% expected, 0.1% prior (revised from 0.0%)
Average Workweek, October (08:30): 34.3 actual versus 34.2 expected, 34.2 prior
Pending Home Sales, September (12:30): -1.8% actual versus 2.5% expected, 4.4% prior (revised from 4.3%)
Consumer Credit, September (15:00): $2.1B actual versus -$3.5B expected, -$4.9B prior (revised from -$3.3B)

November 09 - Tuesday
Wholesale Inventories, September (10:00): 0.6% expected, 0.8% prior

November 10 - Wednesday
MBA Weekly Mortgage Applications, 11/05 (07:00): -5% prior
Initial Claims, 11/06 (08:30): 450K expected, 457 prior
Continuing Claims, 10/30 (08:30): 4350K expected, 4340K prior
Trade Balance, September (08:30): -$45.0B expected, -46.3B prior
Export Prices ex-ag., October (08:30): 0.3% prior
Import Prices ex-oil, October (08:30): 0.3% prior
Crude Inventories, 11/06 (10:30): 1.95M prior
Treasury Budget, October (14:00): -$140.0B expected, -$176.4B prior

November 12 - Friday
Michigan Sentiment, November (09:55): 69.0 expected, 67.7 prior

By: Jon Johnson, Editor
Copyright 2010 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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