Tuesday, May 29, 2012

U.S. Followed European Markets Down



Happy Memorial Day!


The 'magnificent anachronism.' If Patton was out of his time in the 1940's, my goodness what would the General think today?


On Friday as I watched the market chop around and do nothing, I noted that the classic movie channel is playing all the great war shows that have come out over the years. One of my favorites is Patton. I was wondering what Patton, the "magnificent anachronism," would think about the present day. If he was out of his time in the 1940's, how far out would he be today? What would he think about our inability to deal with the likes of Iran or North Korea? Our inability or unwillingness to control our borders? Our inability to rein in spending? The insights of men such as Patton would be very interesting to hear today. But, of course, I digress.

The market was worried about Greece, as usual. If not Greece, then it was Spain. There were refunding issues today. There was concern that Spain would not be able to meet its cash needs. In fact, one of its regions said it needed a bailout. If they are going to bail out the Bankia, their major bank, they said they needed a bailout as well. Of course, everything is okay because the eurozone is in agreement about what to do. Italy's Monty said that most leaders of European countries actually favor the euro bond. That was not necessarily the case because Jean-Claude Juncker said that the idea of a euro bond did not have much support inside the EU. So you can see what the problem was with the market. If they cannot figure things out in Europe, then the markets cannot figure things out either.

European markets were flat to down, and the U.S. followed suit. Futures were all around, and then they chopped through the morning. NASDAQ tried to lead a rally into the early afternoon, but that failed and stocks closed mixed. Yes, they came back late off of the lows, but it was nothing impressive.

SP500, -0.22%; NASDAQ, -0.07; Dow, -0.6%; SP600, +0.09%; SOX, +1.37%

Well, break out the champagne and caviar because we are... going nowhere? If you look at the SP500, NASDAQ, DJ30, or the SP600, they all went nowhere below the 10 day EMA. They bounced on Monday and did finish up for the week, for the first time in three weeks, but they did not make any major progress. The lowest possible resistance is holding the indices in check.

I talked about the quality of the move on Thursday night, throwing out quotes from the Kingdom of Heaven movie, but you can also look at it the other way. The market sold off for three weeks, it rebounded on the week. It could not punch through the 10 day EMA, but it had enough news to sink it right back down and actually have it rollover and sell off, but it did not. While this may not be a blinding surge to the upside, every time the market has reached lower, the buyers have come back in to hold it up. This was certainly no answer to the puzzle on Friday. It was just a throwaway day. No volume, no movement up or down. We will see the resolution next week, but it certainly was not all negatives because the market did not sell off when it had the chance. In fact, it held up.



OTHER MARKETS.

The other markets held their trend for the week, though there were some changes or suggestions of change that we may see something more substantial next week.

Dollar. 1.2513 verses 1.2535 euro. The dollar continued to the upside. A strong upside week. Indeed, it is the fourth straight upside week for the dollar. It has gained against the euro; it has gained against the yen; it has gained against pretty much everything out there because China is starting to struggle. I would say China could be in recession already. Brazil is having all kinds of problems, and India is not immune either. When you throw Europe on top of it, we have problems everywhere. While we have them here in the U.S., at least we are still managing to scratch out positive economic growth for now. That means people are putting their dollars or pounds, euros, drachmas, etc. into the U.S. dollar.

Bonds. 1.74% versus 1.77% 10 year U.S. Treasury. Bonds had some big auctions this week. They were up modestly to end the week. It has been a back and forth session with bonds every day. Up and down, but it has formed a nice pennant after a solid run to the upside. This is a bullish consolidation of a nice move. We have a breakout and a run higher. Now it is setting up for a new break to the upside. Bond markets around the world, particularly the United States and Germany, are screaming of some problems. We know there are problems in Europe, but there are problems elsewhere, as I will discuss later.



Where are the people?

I discussed a lot of that last night with the ghost cities in China as well as the ghost sectors of cities such as in Beijing. They want to build more and "invest" more into infrastructure, but they have more than they can use right now. They could film some really freaky science fiction shows there, like something involving a neutron bomb. They are beautiful, brand new, and state of the art. But as they said in Blazing Saddles, "Where are the people?" They built that whole town of Rock Ridge, but no one was there. Very Chinese-like. How futuristic for Mel Brooks to look down the road and see that there would be other ghost towns. He just did not realize they would be in China. Kind of funny that railroad workers helped build Rock Ridge as well. There is your tie-in. But I digress. Bonds showed that there is trouble in River City, Rock Ridge, China, or wherever you want to look. Even though bonds were not up on the week, they are consolidating for a new move to the upside.

Gold. 1,568.80, +9.00. Gold was up on the day. It had been up much higher intraday, but it gave back some ground. It is trying to show a little reversal of its fortunes. It has been selling since late February after breaking out of its downside channel. It has moved down along the channel and has set up another channel. It is a channel on top of a channel. One channel it broke from, and now it is doing the same thing. It is at support from other price lows from 2011 as well. It looks as if it is trying to put in a double bottom for a new break to the upside.

Oil. 90.87, +0.21. Oil was up modestly, but it is still struggling. Oil has sold off, it is trying to bottom out and start back up. It is at some support sitting over some 2011 peaks. After four weeks to the downside, that is a natural place to try to bounce. If it does bounce, look for resistance back at the 95-96 range. That was important. You can see the shelf where it held for a week before it broke down two weeks ago. We will most likely see a bounce in oil. Given the situation, it will likely not break back to the upside. This is a positive overall because it should be lower given the weak economic data out of Europe, China, and Brazil.

It will help in terms of gas prices as they continue to fall just at the start of the driving season. This is good. I was very worried that we would see $5 per gallon gasoline, or maybe even $ if the pace kept up because of those nasty speculators. But it did not. The speculators have not been mentioned since prices started to drop. I guess they are doing their jobs, so they are not calling them out on the downside. We will all benefit from lower gasoline prices. Note that oil is still more or less in a big, flat range, not really falling that much when you look at the historical charts.


TECHNICAL SUMMARY

VIX: 21.76; +0.22. We saw a break to the upside as the market sold off. We saw the break through the down trendline, a test, and then a three-week surge as the market sold for three weeks. The market tried to bounce last week, and then volatility pulled pack as it should. Very similar to bonds, it has formed a pennant pattern right over the 20 day EMA. That is an upside consolidation pattern. The VIX is sitting right on top of the April high, some peaks from February and March, and some lows from December and January. It is in a position where it is holding above support, and it could very well continue the trend break with a solid move. Of course that would forecast the market selling back down. This is one indication to watch. It is not an investment decision indicator in itself.


Do not be shocked at the lackluster appearance of the internals. It was a very slow, choppy day on Friday. Very much a "Friday before a three-day weekend" kind of session.

Volume. NASDAQ -26%, 1.26B; NYSE -23%, 540M. No one showed up.

Breadth. NASDAQ 1.01:1; NYSE 1.06:1. My goodness, what excitement. It was that kind of day. I was watching the market, looking for plays, seeing what was going on, and checking the news. But there was just nothing happening. Quite boring. That is why I was flipping over to the classic movie channel to see what particular war show was playing on each part of the market day.


THE CHARTS

SP500. There was a bounce on the week up to the 10 day EMA. SP500 kissed it three times during the past four sessions. A good upside Monday, a negative reversal on Tuesday, a positive reversal on Wednesday, and then "blegh" to end the week. Kind of like Monty Python and the Holy Grail when they were reading what someone had chiseled into the wall: "Arrrrg!" But I digress.

SP500 went nowhere, and it was quite boring. Low volume and moving laterally. It did not punch through. This was a relief bounce after three weeks of selling. Good start but not so great after that. It did not move through. The quality of the move was not that great. Think the Kingdom of Heaven. That is on the one side. On the other side, as I brought up in the preamble to this report, it had every reason to slow down. There were continuing problems in Greece, more problems with respect to Spain, and the U.S. data was not that great. Look at durable goods orders and jobless claims. They were not good, but the market still held up. It got to this level, and it was reversed one day, but it did not tank it. It has held up. You have the yen and the yang; the positives and the negatives. Next week we will figure out exactly what will happen. If we get through the weekend with no major stories, maybe the market tries to continue the relief bounce that was deferred on worries of Greece, Spain, Italy, and Portugal. You can just throw everyone in there but Germany, although Germany could be its own problem as well.


DJ30. DJ30 is a very similar story. No doji on Friday, and it just sold off. It was very sluggish, but it did not sell heavily. Same three-week selloff, same rebound up to the 10 day EMA. The same inability to move through.


NASDAQ. Repeat as necessary. Three weeks down, good bounce Monday, laterally the rest of the week. Good reversals off the lows on Wednesday and Thursday. It went absolutely nowhere on Friday. It is still below the 10 day EMA. It is still above the 200 day EMA and other support. Next week tells the tale.


SP600. The SP600 actually put in an upside session, but it was nothing to make you feel warm and fuzzy. It did tap at the 10 day EMA on the high, and it closed well off of the high. It was not that strong. Same situation: three weeks down, broke through its trading range on the way down. It has now rebounded up toward the 10 day EMA. Not showing a lot of strength on the rebound, but not giving up either.


SOX. SOX got tired of getting beaten up. It jumped 1.37% but closed at the same peak for the entire week. It was unable to push the Monday move, and it has worked laterally ever since. The 10 day EMA is coming down on top of it, and that would typically send the index lower. Good to see it up on Friday. I would not count on it leading the market to the upside. It may grudgingly follow, but I would not count on semiconductors breaking out and pulling the rest of the market with them.


LEADERSHIP

The leaders can be broken into three large groups: internet stocks, drugs/healthcare, and utilities.

Internet. VHC has a very nice-looking pattern. TRIP has very solid moves. EXPE had a nice break higher on Wednesday. New high and testing back. Very solid moves on internet stocks.

Drugs/Healthcare. The drugs and biotech areas are performing quite well. Money is flowing their way. IDIX looks great and has money moving its way. ONXX is moving upside still. You get the picture. These stocks are getting money tossed their way. Makes sense. They are more defensive.

Utilities. Then there are the boring, stayed utilities. I am throwing out the DJ15 which is the utility index. It has broken from a shallow cup and is testing it right now with its own version of a pennant. That is fine. It looks great, but they are such slow movers and hard to trade. You can invest in them if you do not want anything to move. It is a good place to park money if you are very worried, but it is not a great place to trade. They are safe and they are considered defensive, which is why money moves their way.

Retail. We had some issues on the week with LOW announcing some cruddy earnings and gapping lower, but other areas have been pretty solid. MNST is solid, moving nicely upside. CRI is moving up for a second day. AMZN is trying to set up for a move to the upside. It may not be there, but it is trying. We still have some pockets in retail as well.

Software/Technology. There are stocks in the software area showing great patterns and could move well. ADVS is one that could put some gains on the table for us. CERN looks excellent. AZPN looks very good for a breakout as well. I was looking at IBM because it is in a long trendline to the upside that has held many times in the past. It has come back to test that over the past four weeks. It is also in something of an ABCD pattern. I see a few things that I like from old IBM. It may not be a stock that will move 20% for us in a flash, but it can make some good trades for us.

Summary. While the market is very negative overall, it still looks solid in certain areas. Money is moving to areas that you would it not necessarily guess. Software stocks look good. Some consumer stocks still look good even though consumer overall has been beaten up in certain sectors over the past several weeks. There are places where money is flowing. If money is flowing there, that is opportunity to make it to the upside. Where money is leaving, there is opportunity to make it to the downside.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html




They are still happy in Michigan, at least for now.


Even Osama is feeling better in Michigan.

Michigan sentiment hit levels not seen since 2007 as the index trounced expectations.
What has the northerners so happy? Part of the 'Planes, Trains, and Automobiles' trade. Car sales have been the strong part of the economy as the twin government companies advertise like crazy and cut 0% financing deals once more. That is boosting Michigan's dire economy. Gasoline prices are falling as oil tumbles lower (what about those bad speculators now driving prices lower. Should we not lift them up in praise when they do what the Administration wants?). The warm weather winter and spring has boosted Michigan Sentiment all year; the base tans are much better much earlier in the year. That has to boost confidence. I also heard recruiting was good for the Wolverine/Spartan state. There you go.

But sentiment is only sentiment. Michigan feels better but what happens when potentially harsh reality hits unjustified sentiment? Sentiment drops.


ECRI Recession Call remains and indeed suggests we are already there.

A week back ECRI reaffirmed its recession call on Bloomberg.

The final cog in the recession picture fell into place: jobs.

Four elements make up the indicators: Real Income, Manufacturing and Trade Sales, Production, and Jobs.

The jobs data shows jobs peaked in February as year over year jobs growth plunged. The decline was so dramatic that in the last 60 years any jobs downturn of this magnitude occurred when the economy was ALREADY in recession. The size of the decline in the context of this current slowdown already in place equals recession.

Thus ECRI is suggesting that we are already in recession but that we typically do not know it until months after the fact.



The above chart shows that GDP adjusted for inflation has hit resistance and then put in a lower high.



This chart shows that income adjusted for inflation has rolled over at a lower high. We have said for months that incomes were negative. They peaked at a lower high and rolled, the last three of four months they have been negative.

Indeed, the past three months the growth rate for incomes is less than at the START of the last 10 recessions. Income is a serious problem: we are supposed to have all of this consumption to come, but how do you have consumption increase when income is negative?

Again, we have been saying this all along. What this data suggests: it is ANOTHER indication that the US is already in recession.


ISM outdated?

Markit has developed its own manufacturing index to rival ISM. ISM is not based on hard data; it is a sentiment survey of businesses. Indeed it used to be called the Purchasing Manager's Index because it was simply a survey of the PM's. They changed the name to give it the appearance of more clout.

The Markit index shows that a weak Europe and China (remember, we are an exporting nation now as our President wanted) is slowing US factories. After we looked to be pulling away we are being dragged back in. Reminds me of Don Corleone in 'Godfather III': 'Just when I thought I was out . . . they pull me back in.'



Markit shows US manufacturing falling to 53.9 versus 56 in April. But Markit says 'robust domestic demand' should keep manufacturing expanding. Hmmm. Look at the ECRI indicator above. How do you have robust demand with incomes rolling over and indeed negative in real terms? If taxes surge at the expiration of the Bush cuts and the addition of the Obama healthcare hikes, incomes will fall even more. Robust? Dubious. TIF and LOW??


What about the BRIC nations? Surely they will pull us and Europe out of trouble. Brazil is slowing quickly as exports and foreign direct investment are tailing off. Brazil's trade surplus was cut in half on the last read. India, it may be in recession already. China? It still has high trend growth in relative terms, BUT . . . as we have often discussed in our own recessions, particularly back in 2000 and 2001, you may not be in negative GDP, but if you have a drop of over 3% it FEELS like a recession. If trend growth is 3% (for round numbers) but you have been growing at 5%, a 4% drop puts you at 1%; that has the feel of a recession.

Indeed, the drop in Chinese output is of a magnitude equal to the slowdown seen in the US in the Great Depression. So China may still have positive GDP growth, but it feels as if it is in a major recession. Just look at those ghost towns and neighborhoods we viewed Thursday night.

How deep a recession? ECRI says not really bad, more like the 2001 variety. The problem: the cycle looks to be one where we have more frequent recessions even if they are not terribly deep recessions. The good and the bad, yen and yang.



THE MARKET

SENTIMENT INDICATORS

VIX: 21.76; +0.22
VXN: 23.99; -0.21
VXO: 21.44; +0.32

Put/Call Ratio (CBOE): 1.11; +0.14

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: 38.3% versus 39.4%. After bumping higher last week Bulls fell to recent lows. Heading toward 35% threshold for a bullish read, down from 43.0% and 41.9% a month back. This is lining up with the put/call ratio. Still over 35% (below which is considered bullish) but dropping fast. Just as the market found support to bounce the bulls ran. 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: 26.6% versus 22.3%. Bears now have some momentum with a big jump taking it off that 20% level it was stuck at. New high for this run though off the January and February highs. Over 35% to is the threshold to be really be a good upside indicator. Back to the 25% to 26% level it held for weeks; we will see if it breaks through this time. 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: -1.85 points (-0.07%) to close at 2837.53
Volume: 1.264B (-26.6%)

Up Volume: 662.34M (+61.58M)
Down Volume: 594.08M (-505.92M)

A/D and Hi/Lo: Advancers led 1.01 to 1
Previous Session: Advancers led 1.03 to 1

New Highs: 24 (+5)
New Lows: 45 (-22)


SP500/NYSE

Stats: -2.86 points (-0.22%) to close at 1317.82
NYSE Volume: 540M (-22.86%)

Up Volume: 1.61B (-390M)
Down Volume: 1.18B (-670M)

A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 1.37 to 1

New Highs: 52 (-7)
New Lows: 66 (-14)


DJ30

Stats: -74.92 points (-0.6%) to close at 12454.83
Volume DJ30: 93M shares Friday versus 126M shares Thursday.


TUESDAY

Next week is a big one for many reasons. The first being this bounce to the 10 day EMA and the resolution of this move. Will the market find reason to break through or will it just shrug and roll back over? Much of that will depend on what happens with data in the U.S. as well as elsewhere.

We will have a full calendar starting on Tuesday with Case/Shiller and consumer confidence. Wednesday we have pending home sales. Thursday we have Challenger job cuts, ADP employment, the second estimate of GDP, initial jobless claims, and Chicago PMI. It is loaded for bear. On Friday we have nonfarm payrolls, ISM index for May, personal income and spending, construction spending, auto and truck sales. This is a stacked week when it comes to data. On top of all that, you have to wonder if there will be a "Greexit," that Greece exit from the euro announced. Or will something worse happen with respect to Spain, Italy, or one of the other Marx brothers in Europe? There are always problems in China. Will they put forth any stimulus? Will it be enough? Will they be able to do it? You would think so since China has all the money it needs. It should be able to build more ghost towns and prop up the economy for a little longer just as we would want to do here.

The irony of all this is all of the Fed's recent statements. On Thursday, Mr. Dudley said there is no need for stimulus, and the Fed is done. As seen with the discussion of the ECRI recession call, they may not know the trouble we are in until the trouble is already here and we are in it. It is often the case that we do not know we are in recession until after the fact. We may not even know we are in recession until after the election. It would be a tragedy to reelect someone who put us in a worse condition than we were in before. But that is the way things work. If it happens, how will we ever get out of it? We cannot put another $900B down the hole with so-called stimulus. Maybe we will do something that actually works like returning money to the people who earn it so they can at least try to invest. That is called tax cuts and investment incentives. Something out of the Reagan playbook? Could it possibly happen under an Obama administration? I won't hold my breath for that one.

The big resolution next week will be whether or not the market can move through the 10 day EMA to the upside or not. If nothing major happens over the weekend, perhaps it can make the move. It is going to be a breakout move? No. It would just be a rebound likely up to the prior highs, and then we see what happens from there. We do not expect anything given the world economic issues and the data we are seeing out of the U.S. But that can give us a nice run to the upside that we can make money on for our existing plays.

We did not do much with plays on Friday. We took a little more gain off of the table on HNT because it bounced up through the 10 day EMA. We locked in over 250% gain on that. We left some because we know the market could turn back down. Most of our plays, based on what sectors they are in, are holding up just fine. We found no reason to do any mass exodus or any real buying, for that matter before this coming week.

We see stocks that we like, and we will continue to look their way. We will also be ready for some downside. If the 10 day EMA does hold as resistance, you probably get some ugly selling. We know at least NASDAQ will go down to around 2700 before it finds any additional support. While that is not a huge move, it is one that we can make money off of. Frankly, if the indices do fail at the 10 day EMA, this next support is likely not going to hold long term. It may hold for a little bounce as we get the little triangles to do the downside. As far as holding up if the 10 day EMA is now acting as resistance, it is not that good of an indication. Remember, the 10 day EMA acted as support on the way up, and it just kept going and going until it broke. If it is holding as resistance on the way down, that shows you how weak the move is. A strong move up the 10 day EMA, and if the 10 day EMA is then holding the index in check on the way down, it is a very weak market but a strong down trend.

We will see what happens next week. We are lighter in the positions now. We are playing some upside, of course, because we are playing this bounce. We still have stocks in very good patterns that could continue to move well for us. We have had to gravitate toward those areas I have been discussing as leadership. We will continue to look at them. We will look at some downside and see how this 10 day EMA bounce resolves itself.

Have a great three-day weekend. Think about those who have died to preserve what we have, and let's honor them by preserving and taking back what we have lost.



Support and Resistance

NASDAQ: Closed at 2837.53

Resistance:
2841 is the February 2011 peak
The 10 day EMA at 2858
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak and PRIOR post-bear market high
2900 is the March 2012 low
2910 is the recent March 2012 low
The 50 day EMA at 2942
3000 is the February 2012 post-bear market high
3026 from 10/2000 low
3042 from 5/2000 low
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:
2816 is the early April 2011 peak.
2754 is the October 2011 high
The 200 day SMA at 2751
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
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low


S&P 500: Closed at 1317.82

Resistance:
The 10 day EMA at 1324
1332 is the early March 2011 peak
1340 is the early April 2011 peak
1344 is the February 2011 peak
The 50 day EMA at 1356
1357 is the July 2011 peak
1371 is the May 2011 peak, the post-bear market high
1378 is the February 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:
1318.51 is the May 2011 low
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
The 200 day SMA at 1282
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
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low


Dow: Closed at 12,454.83
Resistance:
The 10 day EMA at 12,563
12,754 is the July intraday peak
The 50 day EMA at 12,833
12,876 is the May high
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:
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,233
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

May 22 - Tuesday
Existing Home Sales, April (10:00): 4.62M actual versus 4.65M expected, 4.47M prior (revised from 4.48M)

May 23 - Wednesday
MBA Mortgage Index, 05/19 (7:00): 3.8% actual versus 9.2% prior
New Home Sales, April (10:00): 343K actual versus 339K expected, 332K prior (revised from 328K)
FHFA Housing Price I, March (10:00): 1.8% actual versus 0.3% prior
Crude Inventories, 05/19 (10:30): 0.883M actual versus 2.128M prior

May 24 - Thursday
Initial Claims, 05/19 (8:30): 370K actual versus 365K expected, 372K prior (revised from 370K)
Continuing Claims, 05/12 (8:30): 3260K actual versus 3250K expected, 3289K prior (revised from 3265K)
Durable Orders, April (8:30): 0.2% actual versus 0.3% expected, -3.7% prior (revised from -4.0%)
Durable Orders -ex Transportation, April (8:30): -0.6% actual versus 1.0% expected, -0.8% prior (no revisions)

May 25 - Friday
Michigan Sentiment - Final, May (9:55): 79.3 actual versus 77.5 expected, 77.8 prior


May 29 - Tuesday
Case-Shiller 20-city, March (9:00): -2.8% expected, -3.5% prior
Consumer Confidence, May (10:00): 69.0 expected, 69.2 prior

May 30 - Wednesday
MBA Mortgage Index, 05/26 (7:00): 3.8% prior
Pending Home Sales, April (10:00): -1.0% expected, 4.1% prior

May 31 - Thursday
Challenger Job Cuts, May (7:30): 11.2% prior
ADP Employment Change, May (8:15): 145K expected, 119K prior
Initial Claims, 05/26 (8:30): 370K expected,
Continuing Claims, 05/19 (8:30): 3265K expected,
GDP - Second Estimate, Q1 (8:30): 1.9% expected, 2.2% prior
GDP Deflator - Second Estimate, Q1 (8:30): 1.5% expected, 1.5% prior
Chicago PMI, May (9:45): 57.5 expected, 56.2 prior
Crude Inventories, 05/26 (11:00): 0.883M prior

June 1 - Friday
Nonfarm Payrolls, May (8:30): 155K expected, 115K prior
Nonfarm Private Payrolls, May (8:30): 172K expected, 130K prior
Unemployment Rate, May (8:30): 8.1% expected, 8.1% prior
Hourly Earnings, May (8:30): 0.2% expected, 0.0% prior
Average Workweek, May (8:30): 34.5 expected, 34.5 prior
Personal Income, April (8:30): 0.3% expected, 0.4% prior
Personal Spending, April (8:30): 0.3% expected, 0.3% prior
PCE Prices - Core, April (8:30): 0.2% expected, 0.2% prior
ISM Index, May (10:00): 54.0 expected, 54.8 prior
Construction Spending, April (10:00): 0.5% expected, 0.1% prior
Auto Sales, May (14:00): 5.0M prior
Truck Sales, May (14:00): 6.0 prior



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

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

Technorati tags:

Monday, May 14, 2012

Market Stumbles But Does Not Fall

SUMMARY:

- JPM, JWN stumble, but the market does not fall.
- Still holding support, not getting the big selloff, not getting a big reversal, just holding over support.
- Dollar notches 10 straight gains against the euro.
- Utilities leading the market in a rather defensive turn.
- Michigan still feeling good over the warm weather.
- Market starts the week still in position to roll in the range: it comes down to us (as in the U.S.) versus the rest of the world.

Diamonds May Be Forever but will Dimon Be?


Hi, I'm Plenty. Hi, I'm Jamie
Bond: But of course you are But of course you are
Plenty O'Toole Jamie Dimon of JPM
Bond: Named after your father perhaps? Not after this quarter's performance

They say diamonds are forever, but in the case of JPM, perhaps Jamie Dimon will not be. That is a bold statement. I do not think he will lose his job, but he will subject himself to a lot of scrutiny from the very regulators that he had so much to say against. He left himself open by not taking care of business. Everything he said up to now, unfortunately, will be washed away.

I agree with a lot of what he was saying. Dodd-Frank is not working. It has concentrated more assets and funds into the five largest banks than there was before the financial crisis. Loans are still hard to get. Mortgage refinancing and mortgage applications used to take 30-45 days. Now you are looking at 70. Wells Fargo tells people up front to expect 90 days. It is extraordinarily hard to get money. The regulations are not working. When did you have the problems that JPM showed, it will not be changed anytime soon because the powers-that-be will say, "Look what we told you. You leave those private enterprise, bigwig fat cats up to their own devices, and here is what we get. A $2B loss." But does it really matter? Yes, it is a big hit. A 9% and heading to 10% loss for JPM shareholders is not something they will enjoy, but do we have to call in everybody on the planet to look up their dress and see if there are any cracks there? No pun intended. But that is exactly what will happen, and JPM will be the whipping boy.

The day was spelled out in three charts. JPM gapped down to the 200 day EMA. JWN gapped down almost to its 200 day EMA on its lowered forecast for 2012 and an earnings miss on its supposed e-commerce spending. The SP500 held up. It held over its February 2011 high, and looks ready to at least try trading higher in the trading range.


Greece 'talks' for a new government fail, as if we didn't see that one coming.


There was a significant amount of bad news on Friday, but the market continued to hold support. It was not just JPM, JWN, ESRX, and the usual that we knew about on Thursday night. There were also the talks for a new government in Greece that, oh, somehow failed. As if we did not see that one coming. What are the odds of the various coalitions that barely got 25% each to cobble together some governmental plan? It was a bit crazy to think that would happen without the elections next month. Most people in Greece are against the austerity, so they will go to the polls and vote. That is all there is to it.


China and Hong Kong Having their Issues Yet Again.


"Hong Kong is ours now Bond" said the Mandarin Oriental Hong Kong manager. But is China messing it all up?

It was not just Greece. We still have to worry about China and Hong Kong. They are having issues once again. China saw its industrial production growth at the lowest level of growth since 2009. It came in at 9.3% year-over-year. My goodness. That was versus expectations of over 12%. Loans were dropped significantly. 681B yuan versus 780B expected. Then there is Hong Kong. I loved it in James Bond when he goes into the Mandarin Oriental Hotel in Hong Kong, breaks the place up as usual, and the response is, "Hong Kong is ours now, Bond."

Hong Kong is having some trouble as well. Its GDP growth was 0.4% when it was expected to go up a whopping 1.1%. It has issues. Hong Kong is China's, but is China messing it up? China's is engineering a hard landing. It is not a soft landing, and I do not care what people on CNBC say. Will not be able to engineer a soft landing. They have had unbridled growth. Some people will say China is great no matter what. But there are people who have brought back pictures of the empty buildings and empty homes in Beijing. They just keep building further and further out, creating virtual ghost towns in the city. They keep pumping our deficit money into it. China is using its hard currency to keep building and building.

Now we have commodity prices falling. Remember that China was buying all the copper and steel it could get. Now it is buying gold like crazy. Gold is down so China is buying. That makes sense, and they are doing something smart. There is speculation now that China, this year or next year, will have to dump a lot of its copper and other commodities on the market because it has stockpiled them. It will find it has too many. That could be an interesting thing. Yes, Hong Kong is China's now. I just wonder if the will be able to keep the Chinese end up as the British used to keep the British end up according to Bond.

Looking at the Friday session, it was not a thing of beauty. Futures were down. No question they were going to be down. "Duh" is what we usually term it here in the office. Big declines but big recoveries as well; indeed, surpassing the Thursday afternoon high early in the morning. But it did not stick. Stocks rolled over and skidded south all session. Half went negative and half did not. The gains and the losses all came out in the wash.

SP500, -0.34%; NASDAQ, +0.01%; Dow, -0.27%; SP600, -0.27%; SOX, +0.73%.

This was quite a showing after such bad news. JPM is a Dow component, and to be down just 0.27% is fairly impressive. Not totally impressive, but fairly.

The indices were faced with bad news all week: Greece, Spain, Italy, China, U.S. earnings starting to corrode, and just more lackluster economic data. But the indices held the line at support. They did not go bouncing to the upside, but faced with all of the crud that they had to deal with, this was not too bad. I do not want you to say, "Johnson has gone totally bullish," but you have to recognize strength where there is strength. This is not raging upside strength, but it is relative strength. And relative strength is a relatively good thing when you have so many negatives and the market is still managing to hold support. Yes, it still has something of a rounded top look to it. You can see it on the NASDAQ and SP500, but they are holding key support and there are some stocks moving higher. Not all of them. I will talk about that in leadership because it is kind of a defensive mix.

There are still plenty of stocks that look good and like they want to move up. This coming week the question is whether or not this hold of support turns into a bounce. This question will have to be answered because it was not this week. Thursday it looked as if it might turn into a bounce. Remember, we had the test a couple of days that bounced off of that support, looked good, and there was a lot of buying activity at that support. Then on Thursday it took off to the upside but frittered it away. I think I used the term from Shawshank Redemption, "Like a fart in the wind." In any event, it held and withstood bad news on Friday. I think I have made that point enough. I just wanted to drive it home.


OTHER MARKETS

The other markets had the same trade that they enjoyed (or did not enjoy) all week long. They put money into the U.S. greenback and bonds, took it out of oil, commodities, gold, and anything that had to do with expanding the rest of the world.

Dollar. 1.2919 versus 1.2959. The dollar posted its tenth straight gain versus the euro. It had not done that since 2008. It is a dubious honor, but nonetheless is shows that there is worry in the rest of the world, particularly in Europe with money running back to the U.S. The dollar continues to look solid. It is not breaking out, but it is in something of a pennant pattern after this run from October up to early January 2012.


Bonds. 1.84% versus 1.88% 10 year U.S. Treasury. Bonds rallied yet again. The 10 year is trying to break back to the upside. There was Bernanke talking, the Fed talking, and then what happened here? All of a sudden Europe was a problem again. There was a gap down, a gap up, and a little island reversal. Bonds have been moving higher ever since. Not in a straight line, but they are moving higher. Now they are matching some prior resistance levels. They look in good shape to continue upside because there is nothing to end the fear. We have Greece hanging out there, and nothing will be resolved there until June. We have issues right here in River City. It is capital 'T,' it rhymes with 'G,' and that stands for Greece. You tell me what that one is from.


Gold. 1,584.00, -15.50. Gold was hammered again. It is trying to hold and bounce after getting clubbed on Tuesday and Wednesday. I guess that is a little consolation, but it is nonetheless in a position where it could bounce with something of an ABCD pattern. We will see what happens with gold. It is definitely under pressure, but grudgingly so.


Oil. 96.03, -1.05. Oil had a tough week. It managed to hold the recent lows for the week, however, after careening to the downside the prior week. It is at some support. We will see if it can rebound back to the upside. There is no reason for it to break down. It has some serious support at the 96 level. Then again, there was no reason for it to drop so sharply early in the week. Although there are those darn speculators. I guess they got out of the market. Maybe this president scared all the speculators out of the market, and that allowed oil to fall. Good for him. I am so happy he understands markets and economics so well that he was able to do that. I will sleep better knowing that in the summer we may not have $6 per gallon gasoline. It will just be $5 per gallon.


TECHNICAL SUMMARY

Volume. NASDAQ -13%, 1.7B; NYSE -1.5%, 721M. A quieter session after a lot of back and forth all week long at support. Volume still remains somewhat elevated as it holds support. As noted earlier in the week, that is not necessarily a bad thing. As a stock or index holds support, higher volume shows that buyers are stepping in. It shows a lot of bumping between the sellers and buyers, but as long as it holds that support, that is a positive overall.


Breadth. NASDAQ -1.45:1; NYSE -1.5:1. Breadth was nothing to speak of.


THE CHARTS

SP500. We spent four days kissing the February 2011 peak. It is an important support level for SP500 that has been holding. What we want to see for the upside is a break back higher and then continue the trading range that sits roughly on top of the 2011 trading range that formed just before all hell broke loose in the summer and early fall. That is the thesis, and the fact that the market is holding up in times of bad news remains a positive for SP500. It also remains positive for the


DJ30. The DJ30 is also holding an important level: the twin peaks from July 2011. It is also kissing them, spending time there and trying to bounce. That is a positive. It overcame very negative news from JPM, as did SP500. That is a positive. Again holding up at support, and it looks like it has plenty of bounce ability here. It will not be huge. About 12,800 to 13,250. Not a tremendous range, but we can make money off of individual stocks in that move.


NASDAQ. NASDAQ is the same story. It is holding above the 2011 highs not interim highs, but the highs. It was trying to bounce on Wednesday. It tried on Thursday and gave it up. It tried again on Friday. It may be able to pull it off. There is some relative strength in tech. Although that is an issue. If Europe is in trouble, then techs tend not to perform as well because Europe is such a large buyer of our technology. We will see how it plays out. Well do have another index, three of the large caps, holding up at a key support level.


SP600. SP600 is also holding up at an important support level. It spent six days there with the close from Friday a week ago. It is holding, and we will see if it can bounce. It has that bearish look to it overall. There are those rounded tops and kind of a head and shoulders. Everyone sees that, but those things are very iffy. How many times have we seen the big head and shoulders that everyone spots and nothing happens? As I said earlier, this coming week will be a decision week for all of the indices, SP600 included.


SOX. SOX posted a gain on the day, but it closed well off of its high. It is holding at a very important support level near 395. Varying support at 390-395. The 200 day EMA just happens to be there. This has held its highs and lows and consolidation ranges for quite some time. This has the same head and shoulder-ish rounded top look that SP600 has, so there are the same worries that it could just roll over and die. But it has not done it yet, and it has handled a lot of bad news along the way. It has made it through earnings seasons with a fade, but nonetheless holding support. Hard to complain about this.

I will not complain too much, but it is still worrisome. The patterns are worrisome because you have these rounded tops, but they are holding support in the face of bad news. If the news continues to worsen, they will break down eventually. We are still operating under the thesis that we will have a roll back up in the range. We will look at upside plays, but we will also look at downside plays because we have to. You have to be ready in case the support on any of the indices does not hold. If one or two goes, they likely all go to town. And I am not talking about the better part of down.


LEADERSHIP

Financial. Even though JPM took it in the gut, some others held up very well. WFC was solid indeed. The banks held up well. BAC is still in its downward channel, sitting right on top of the 200 day EMA. They handled the bad news with aplomb, and if they are any indication, than it looks like it could just be a JPM issue, and the rest of the market could bounce to the upside.

Metals. Even commodities were not too bad. FCX did not have a good week, but it did not implode. AKS did not have a good week, but it bounced back at the end of the week. What is the problem with these patterns? They are hideous. These are not great patterns, but they are not necessarily great shorts right now either. It is safe to say that metals are not something that we want to jump into until we see some kind of improvement that would suggest it is time to move in.

Retail. JWN took it on the chin. Then you had BBBY that accelerated to the upside on strong volume. TSCO moved to the upside. It does not look as if those are in too bad of shape. How strange is that? When have some retailers moving just fine while a big-name brand got hit. It looks very specific to the market. As a matter of fact, SBUX is trying to bounce pack up. Curious. We will see if it can make the move. It is up to its 50 day EMA. It, too is trying to make a comeback. It will be an important week for SBUX as it tests. AMZN had a decent week. It bounced back up to its prior gap-up highs on earnings. We will see how it plays out. It does not look like it has a play for us right now, but it could.

Drugs. Drugs are performing fairly well. JAZZ is starting to bounce to the upside. QNM is choppy but a very interesting pattern, trying to move up as well. INCY was breaking to the upside this week off of a nice test. We still have drugs performing. They are kind of defensive.

Utilities. The utility index hit a post bear market high today. That is the DJ15. Utilities are very defensive. They do not move much, and you invest in them when you are going back to basics. People still have to heat and cool their homes, so we will have the electricity. We may not make much money, but at least we will not lose a lot of money. That is the theory. They seem to be performing better.

Techs are being a little weak. Drugs are a little strong. Utilities are stronger. That means that it is a little more defensive. Telecoms are performing a bit better. Some retail stocks look great. That is not so defensive. But metals, commodities look very bad. Financials are in the hunt, but it is still a long hunt for them.

It is a mixed market for sure. We have to look at individual stocks. We cannot say one sector is going to move higher and we can take advantage of it. We have to pick the stocks at a look good. They are still out there. Again, we will have to look both ways for the coming week because we have indices that are sitting at a support level. While we expect them to bounce to the upside and continue the range, sometimes those who expect something can be disappointed. That is our gut (with some intellect) saying that we expect a bounce, but the market will do what it will do. It is at an important level, so if it wants to break down, we will let it. The thing to watch out for is that false break where it breaks and then reverses. We were hoping we would get that on Friday, the break lower below support that reversed. It did not pan out. Maybe it happens in the coming week.



THE MARKET

SENTIMENT INDICATORS

VIX. The VIX has been holding its break above the trendline that started in early April. It came back to totally test the break. Indeed, it went below it, but it held the trendline. It has bounced. Now we have a little double top action. There is serious resistance here. It hit that resistance level in April, in March, in February, and then it used it as support in December and January. This is an important level. We will see if it can make the break higher. Of course that would mean the market would sell. I am not sure that will be the case. We may get another trade back down to this late-April level before it moves higher again.

VIX: 19.89; +1.06
VXN: 21.79; +0.46
VXO: 20.56; +1.46

Put/Call Ratio (CBOE): 1.24; +0.15. Put/Call ratio surging higher as the indices hold support. Sure looks to be a contrary indicator for an upside bounce.


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: 38.7% versus 43.0% versus 41.9%. Wow that is a turnaround. Last week we were puzzled by the bullishness persisting but this week as the indices sold to support, and held it, the bulls ran away. Heading for 35%, the key level that turns this to a bullish indication. This is lining up with the put/call ratio. Still over 35% (below which is considered bullish) but dropping fast. Just as the market found support to bounce the bulls ran. 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: 20.4% versus 20.4% versus 23.7%. Okay, well the bears, after a big decline two weeks back, continue to hold at low levels. Would prefer seeing them run higher in sync with the bulls fading. They have been divergent by a week or so of late; we will see if they catch up next week. Have to get over 35% to really be a good upside indicator and it is heading in the wrong direction. Thus the contrary worry it stirs. Are investors too complacent with the market facing all of these issues? Below late March, and that was down from the 25% to 26% level it held for weeks. 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: +0.18 points (+0.01%) to close at 2933.82
Volume: 1.719B (-13.05%)

Up Volume: 803.12M (-2.39M)
Down Volume: 903.27M (-256.73M)

A/D and Hi/Lo: Decliners led 1.44 to 1
Previous Session: Advancers led 1.35 to 1

New Highs: 51 (-16)
New Lows: 89 (+27)


SP500/NYSE

Stats: -4.6 points (-0.34%) to close at 1353.39
NYSE Volume: 721M (-1.5%)

Up Volume: 1.11B (-1.13B)
Down Volume: 2.66B (+1.25B)

A/D and Hi/Lo: Decliners led 1.52 to 1
Previous Session: Advancers led 1.7 to 1

New Highs: 84 (-16)
New Lows: 45 (+15)


DJ30

Stats: -34.44 points (-0.27%) to close at 12820.6
Volume DJ30: 148M shares Friday versus 152M shares Thursday.


MONDAY

I said it was an important week in terms of technical action. I will talk about that shortly, but it is also an important week in terms of economic data. On Tuesday we have Retail Sales and CPI. Very important. Empire Manufacturing is also quite important. We will have Business Inventories. Are they rising or falling? Is it because of sales or lack of sales? Wednesday there is Industrial Production and Capacity. There are FOMC minutes as well. Housing Starts will be a big one also. Then on Thursday we will have Philly Fed and the Initial Claims. It will be a big data week.

It will also be a big technical week. We have the indices in position to bounce off support. They did not do it last week. They had a chance on Thursday and they blew it. They had a chance on Wednesday on the NASDAQ and it blew it. Then on Friday they had a chance to sell off but they did not. That shows strength. What we are looking for and what would have been the great scenario was the initial selloff, the big one that undercut and then a reversal. We got a selloff, but it was not big enough. If we get an undercut, we often get that false breakdown. The false move lower that reverses off of support. That is something we have seen over the last few years in this market. That could be very interesting.

If things start negative on Monday, we will not assume they will dive. We do not dive into a bunch of new downside plays on Monday morning if there is a break of support. If it comes back up and tests and fails, then we can start putting our toes in for a few more downside. But we would watch for a reversal. Why? Because we had a bunch of bad news to end the week, and the market still held up.

Earnings have corroded, as I have said before. We are still holding this support. Watch for a break to reverse. If we do not get a break, and let us say the market starts to the upside, then it could mean that it will try to rally. But we would be weary of that just as we were weary of it on Thursday when the market started to the upside. It looked as if everything had held on Tuesday and Wednesday and it was ready to bounce. It did bounce, but then it just fizzled away.

We want to watch and make sure that good stocks hold good moves. If that is the case, we can step in. If this is a breakdown and there is no recovery and stocks that are in position to sell break down and do not come back, then we can move in on them. It is a market of individual stocks. The market will break one way or the other, and that will tell the tale for most of the stocks in the market. That is why we want to see a little confirmation, a little hold with respect to any move up off this support or that breaks below it. We want to make sure a break below fails. They often come back to test, particularly given that it has tried to hold for four days now. We do not want to get too hasty and jump in too quickly.

We will have plays that look upside for the range, and then we will have some that look downside in case there is a break. Yes, the market is once again at one of those points where it has to make a decision. It will make a decision based on what it sees down the road. Economically, if things are going down the toilet, it will tend to break lower. But it does not mean that it has to break lower right now, even if things are heading down the toilet. Remember, last year this thing wound up back and forth for six months from it made a sharp break lower. Here we are just over two months, so we really just started. We have the end of Operation Twist in June, still off a little ways in the distance.

We will be prepared as my sons are because they are Boy Scouts. We will play what the market will give us because we want to take what the market is giving. Right now, that means individual stocks that look good to the upside and look good to the downside.

Have a great weekend!


Support and Resistance

NASDAQ: Closed at 2933.82

Resistance:
The 50 day EMA at 2990
3000 is the February 2012 post-bear market high
3026 from 10/2000 low
3042 from 5/2000 low
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:
2910 is the recent March 2012 low
2900 is the March 2012 low
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.
The 200 day SMA at 2739
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
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low


S&P 500: Closed at 1353.39

Resistance:
1357 is the July 2011 peak
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1374
1378 is the February 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:
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
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
The 200 day SMA at 1277
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
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low


Dow: Closed at 12,820.60
Resistance:
12,876 is the May high
The 50 day EMA at 12,988
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
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,186
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

May 7 - Monday
Consumer Credit, March (15:00): $21.4B actual versus $11.0B expected, $9.3B prior (revised from $8.7B)

May 9 - Wednesday
MBA Mortgage Index, 05/05 (7:00): 1.7% actual versus 0.1% prior
Wholesale Inventories, March (10:00): 0.3% actual versus 0.6% expected, 0.9% prior
Crude Inventories, 05/05 (10:30): 3.652M actual versus 2.840M prior

May 10 - Thursday
Initial Claims, 05/05 (8:30): 367K actual versus 365K expected, 368K prior (revised from 365K)
Continuing Claims, 04/28 (8:30): 3229K actual versus 3288K expected, 3290K prior (revised from 3276K)
Trade Balance, March (8:30): -$51.8B actual versus -$50.2B expected, -$45.4B prior (revised from -$46.0B)
Export Prices ex-ag., April (8:30): 0.2% actual versus 0.5% prior
Import Prices ex-oil, April (8:30): 0.1% actual versus 0.5% prior
Treasury Budget, April (14:00): $59.1B actual versus $58.0B expected, -$40.4B prior

May 11 - Friday
PPI, April (8:30): -0.2% actual versus 0.0% expected, 0.0% prior
Core PPI, April (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Michigan Sentiment, May (9:55): 77.8 actual versus 76.0 expected, 76.4 prior


May 15 - Tuesday
Retail Sales, April (8:30): 0.2% expected, 0.8% prior
Retail Sales ex-auto, April (8:30): 0.2% expected, 0.8% prior
CPI, April (8:30): 0.0% expected, 0.3% prior
Core CPI, April (8:30): 0.2% expected, 0.2% prior
Empire Manufacturing, May (8:30): 8.4 expected, 6.6 prior
Net Long-Term TIC Fl, March (9:00): $10.1B prior
Business Inventories, March (10:00): 0.3% expected, 0.6% prior
NAHB Housing Market Index, May (10:00): 26 expected, 25 prior

May 16 - Wednesday
MBA Mortgage Index, 05/12 (7:00): 1.7% prior
Housing Starts, April (8:30): 680K expected, 654K prior
Building Permits, April (8:30): 730K expected, 747K prior
Industrial Production, April (9:15): 0.5% expected, 0.0% prior
Capacity Utilization, April (9:15): 79.0% expected, 78.6% prior
Crude Inventories, 05/12 (10:30): 3.652M prior
FOMC Minutes, 4/25 (14:00)

May 17 - Thursday
Initial Claims, 05/12 (8:30): 365K expected, 367K prior
Continuing Claims, 05/05 (8:30): 3250K expected, 3229K prior
Philadelphia Fed, May (10:00): 8.8 expected, 8.5 prior
Leading Indicators, April (10:00): 0.2% expected, 0.3% prior



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

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

Technorati tags:

Monday, May 07, 2012

Stocks Run From the Jobs Report

SUMMARY:

- Unemployment rate decline touted but most see through it, and most importantly, the stock market doesn't buy it.
- Stocks run from the jobs report, end up right back where the bounce started two weeks back.
- Dollar surges despite weak jobs report, but bonds, oil, and gold act as you would expect.
- Jobs just don't add up, even to 115K non-farm jobs.
- The jobs market is, yes, different this time because the US is different.
- Is this as good as it gets in terms of the recovery?
- Austerity doesn't work? How about Keynesian economics?
- The indices are back to where the bounce started. Unless a recession is coming the indices should hold above the 2011 highs.


Friday was the jobs report, and investors received a gut punch from the results. Stocks took an old fashioned tail kicking as a result. Europe tanked after the US numbers came out. While US futures were not gutted on the news, quickly after the release there was the initial bump higher on the lower 8.1% unemployment rate, but then everyone saw through the numbers. It was a miss with respect to the nonfarm payrolls at 115K measly jobs (and it was not even that much; I will go into that later). The 8.1% was due to a 552K decrease from the workforce. Those people became part of the 88.4M people no longer in the workforce. Stocks turned down premarket and then sold quickly all the way into lunch. It was a fast drop as first, and then the market moved basically laterally all afternoon. It tried a late bounce, but that was horribly rejected late in the session with the indices going right back down to their lows for the closing bell.


Jobs report gut punches the investors . . .



SP500, -1.61%; NASDAQ, -2.25%; Dow, -1.27%; SP600, -1.79%; SOX, -2.1%.

Once again, growth took it in the chops. Although SP500 was not that strong as financials took it in the nether regions, so to speak. I am sticking with that tail-kicking, gut-punching theme. The move pushed the indices right back to where they were two weeks ago when the most recent bounce started. It was a good bounce. They were holding up nicely, but they could not withstand the jobs. Maybe they can start over again, but when you lose these kinds of moves and you quickly come back to the same support levels, it is not that great of action. You are getting that chop that we saw in the spring and then the selloff in the summer of 2011. Operation Twist is scheduled to end in June. As we can see, what happened starting February of 2011, we are getting the same volatile, choppy action now with not nearly the same kind of rise we had out of the August 2010 low. We did not get nearly the same mileage out of the run. That leaves the indices in a precarious position, but that is the way it has been for the past month as they try to get off of this support level. They are having a hard time doing so.

Stocks get an old-fashioned tail-kicking



OTHER MARKETS

The markets overall responded to a weaker economy. The numbers showed fear and weakness. The dollar was stronger because Europe plunged when the news came out from the U.S. Why would it do that? Because the US is Europe's lifeline. We are the people they call when things finally go down. Europe has always called on us. They wanted us to be the place that made the great drugs because we have invention. We allow our companies to spend billions because they can make the money from it. But Europe does not want to pay for it, so they get cheaper drugs. We are a lifeline for drugs and for a lot of things in Europe.

We work hard and make a lot of money so Europe can enjoy the lives it does. But now that is not happening. The world has changed and the governments cannot enjoy the largesse that they have in the past. They cannot employ most of the population and give them these huge pensions. It is ugly. They are finding out what happens when, as Margaret Thatcher said, they run out of other people's money.


Dollar. 1.3083 versus 1.3151 euro. Big bounce against the euro. The dollar was stronger because of that lifeline. Again, if it is bad here, than it has to be worse in Europe. That is what everyone seemed to be buying, so to speak, when they jumped into the dollar.


Bonds. 1.88% versus 1.93% 10 year U.S. Treasury. Bonds surged on fear. Last night I said that they could take off again based on the numbers, and it broke the 1.9 handle. This is crazy. Things are supposed to be getting better here, and we see the bond yields racing higher. If they break over the high from a couple of weeks back, then Katy, bar the door. They will be running, baby, and that is not good. As we saw last year, when they run, that is not necessarily great for the U.S. economy and for the world. It is a fear factor. Bonds should be selling and yields should be rising if the U.S. economy is better, which is not the case. Big money is moving into bonds for safety, and big money from the continent is moving into our bonds for safety as well.


Gold. 1,645.40, +10.60. Gold rose, acting as a fear hedge. Not a huge move, but it held where it needed to hold. It held at the prior lows on five occasions, including the gap point from December. It is still trying to hold up in this range after it broke out of its downward channel and then tested. It has been testing ever since. We had that inverted head and shoulders which got a little sloppy on Wednesday and Thursday. That was kind of surprising. Now we will see if it can make a break to the upside. If this fear trade continues, that would be the case. It sold off because the Fed and the ECB where saying there would be no more stimulus. There may not be anymore stimulus, but if that is the case, the economies will probably crash and gold will take off anyway.


Oil. 98.49, -4.05. Oil was clobbered. It is back below 100. It has not been there since early February. A pretty ugly move on oil. It seems surprising, but then again, when you think about the economies, it is not all that surprising. If things are as bad as the jobs report indicates I will go into this, but you should not believe what you are hearing from the government right now. There is a lot of detail that shows it is hogwash. If you accept that, you can totally understand that oil is falling because Europe is in the toilet. It is probably flushed halfway down to the sewer right now. It could be that the ECRI, which made that recession call back in September of 2011 for the late summer of 2012, could be right. I understand that one report does not make a difference. We saw that the ISM was good. It was good! Weekly jobless claims suddenly tanked out of the blue. But then we have the same problems that we have always had. We will see where it goes. It does not look too promising, but it is not the end of the world after just one jobs reported.


TECHNICAL SUMMARY

Volume. NASDAQ +4.3%, 1.91B; NYSE -3%, 747M. Volume was mixed. That was one of the good things on the session. Even though the indices sold, it was not runaway selling. It was mixed. It is notable that the selling occurred on the growth index and not the more staid, income-centered NYSE.


Breadth. NASDAQ -3.8:1; NYSE -3:1. The advance/decline line started to get a bit ugly. We are getting some numbers skewed to the downside, but volume was not horrible. We can deal with that.


THE CHARTS

SP500. SP500 is back down to where it was two weeks ago and, yea verily, a month ago. It is sitting just below the 2011 peak that was hit in May. It is still holding the breakout, but it has a high on lower MACD, a bounce to a lower high, and it is struggling. It was in good shape. It was holding above that mid-April bounce, sitting right on the 10 day EMA. It looked solid but gave it up. Maybe it will just be a false break and reverse. Maybe, maybe not. It was reason for fear, but it did not break the market. Now we will look at the other indices and see if we change our minds.


DJ30. DJ30 was sitting pretty at the 10 day EMA, and then it fell to the 50 day EMA. It is still holding above the 2011 highs. It fell through this channel that had been moving to the upside. The question is has it put in a double top on lower MACD. It will head down. Is sure looks like it has done that; that would be the technical read on it. But it is holding the 50 day EMA, and that is one of the reasons we did not move into the DIA downside play. But it is there. It is just hanging out, and we have that to worry about. If we get a bit of a bounce and then a crash back through, we could get some more selling. We see the Dow from a pretty good setup to hurting its prospects a bit all in one session.


NASDAQ. NASDAQ broke below the 50 day EMA with a gap. It is trying to hold at the mid-April lows as well as the center of the range from February. NASDAQ does not look that great, obviously. Techs were slammed. Growth is getting hit. It will be an important test for NASDAQ whether it can hold or if it will break below. If it does, it has some gaps to fill. It has these prior highs from 2011 that it wants to hit. One of those is right at 2900, another 50-60 points away. NASDAQ looks like it wants to obviously give back some more.


SP600. SP600 is right back down to where it held in April and again in early April and roughly March. It is getting close. It is selling back down, and it has that head and shoulder-ish look to it. We just have to see how it holds at this key support level coming up that has held four times in the past.


SOX. SOX continued its fade from the 50 day EMA. No surprise there. It is coming back to its low from two weeks ago. It is almost at that level. It is important because this is right at some peaks from late 2011. This is a critical level from October and November 2011 highs to June and July 2011 lows. That is a very critical support level, and stocks will likely test that. It has a head and shoulders setup. Looks like it wants to fall to that level.


With does SOX do for you? We had this big chop in early 2011 that sold off into the 2011 summer eurozone meltdown. We have a head and shoulders here. It never made it back up to the old highs, and it wants to sell back down to this level. It will come down to a key level at the top of that range. That will be the important test for the SOX.

Looking at the SP500, we are seeing the same action that we saw back in 2011. It was in this trading range, and then it broke down when things got really ugly late in the summer in Europe. Now we have a trading range going. This trading range in 2011 lasted for six months. We are just about two months into this one, so we could trend laterally for quite some time. That is why I am saying it is not necessarily a sign of a major breakdown. We are going through the death throes of Operation Twist. The market is trying to decide if the Fed is serious about not coming through with anymore stimulus or if it is just bluffing as it was in the first half of 2011. Remember, QE2 ended in July. It took them awhile to figure out and finally say they would not issue anything else, but they had to because of the eurozone meltdown. They had to come out with Operation Twist.

They desperately do not want to do anything else, but it will if it has to. We have incredible, impossible debt. We have an election coming up where no one will want to do anything to address our debt problems and fiscal problems. The Fed will have to act, but it does not want to because it will be seen as a political move. Poor Mr. Bernanke; what will he do? We are in the death throes of Operation Twist. Similar to 2011, we could see this choppy trading range continue. I would not be too surprised if SP500 pulls down to this early April or maybe the early March lows and holds. That is sitting right on top of the key peaks from the 2011 trading range. If the market anticipates another Fed action, it will not want to sell back down through this old trading range. That is just the way they work.

It looks bad. It IS bad. The economy is not good. But if the market is relying on the Fed to produce some kind of fix for it, then it will try to hold up and wait for that fix to come, and then we get this range-bound trade that we have going right now.


LEADERSHIP

Not everything was down. Techs were hit and some of the recent leaders were hit, no doubt. PCLN was taken down but not sold off. PII was taken down but not sold off.

Healthcare/Drugs. If you really want to get interesting, just look at the drugs, biotech, and health care. They are all holding up just fine. AMGN is doing okay.

Internet. Internet stocks are not doing badly. They held up well on the day. RENN was up on the session. ARBA is holding up just fine, not even paying attention to what is going on. We had problems with high flyers. They were clipped, and a lot of the other stocks that were industrial or energy related got nailed pretty hard. The metals took a good beating about the head and shoulders.

Retail. Consumer stocks are holding up pretty well. YUM was down, but it is still holding its trend. EAT looks fine and did not pay any attention to what is going on in the market.

We still have areas that are holding up just fine. Health care is kind of defensive. Internet is growth. Of course restaurants are consumer related. We still have areas that are in decent shape. That tells us that we can very well have a trading range in the market versus a rollover and selloff right now. The two competing forces right now are whether the Fed will come out with Quantitative Easing (or some other form) and whether the economy will roll over into recession as ECRI predicts. Those are the competing forces right now. That will determine a lot in what happens in November and what happens to our country overall for the next 10 to 20 years. We are in very important historic times. I bet you did not even know it. You learned it here first.



THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html


Jobs report so full of misleading and worrisome data.


All the players but one in this cartoon are gone, but the game plan apparently remains the same.

With the unemployment rate falling to 8.1% the headlines are already trumpeting the supposed virtues of that number without understanding the implications. Our President was out early in the week bragging about 8.2%; now he will certainly crow louder over 8.1%.

Shrinkage: It isn't just a Seinfeld show plot.


But the 8.1% came from more losses in the workforce, not more jobs, keeping the trend alive that shows since unemployment supposedly peaked, 80% of the decline in the UER is due to workforce shrinkage.

Participation rate: 63.6%. Lowest since 1981
Those who can work but are out of the workforce: +552K to 88,419,000
Those out of work 39.1 weeks or longer: 41.3%
U3 Unemployment (factoring in growth in the workforce per month): 11.6%

The result of the numbers: There is no growth in employment. In fact we are heading in the wrong direction and the PROBLEM is we are deluded into believing exploding the debt and size of government, regulation, and yes, raising taxes has a BENEFICIAL impact on the economy. Common sense tells you that is not the case: if it were such failed or economically crippled societies such as the USSR and Cuba would be economic giants. Yet our populace, aided by a totally despicable news media that now gives Pravda a run for its money, will accept the 'improving' numbers. Well, at least half the US will.








Job Quality is Not Job 1.
Average hourly earnings: 23.38 versus 23.37 in March.
Worse: Negative, i.e. declined, on an inflation adjusted basis.

Part-time jobs continue to rise while full time jobs fall:
812K loss of full-time jobs in April, largest since 3-09
508K new part-time jobs


115K new jobs? Not really. The raw data shows we lost more than that number.

Not content with reducing the labor force to drop the unemployment number, the numbers hanky-panky goes further into the non-farms jobs.

There is a birth/death component (guesstimate) that adds back into the number 'jobs' (though they are not really identified anywhere) based upon the birth rate and death rate. There is an assumed 90K addition to the workforce each month based upon population growth, but the birth/death takes it further and tries to strike a balance between population growth versus declines from death.

This past month the addition to jobs was 206K, much larger than anticipated and much larger than in 2010 and 2011. If that is backed out, there was a jobs LOSS in the 90K range. Wow. Bet you won't see THAT one on the headlines.



Hate to say it, but it IS different this time because the US is different.


My ears always perk up whenever I hear an economist, analyst, trader, or financial reporter say 'this time it is different.' Typically that means sentiment has reached such an extreme level, exuberant or negative, that a turn is in the works.

Thus I write the following with an understanding of what some will interpret it to mean, but knowing that it is based on facts and analysis, not emotions and hyperbole.

This recovery is different from all others in the post-war era, and if we remain on the same track it will remain different. I am not talking different in that we simply decided to take a different route to same destination. This is a different route economically that is showing up in the inability to create jobs. Everyone ASSUMES that jobs must come. No, they don't have to follow. There are policy reasons why no jobs are created here (domestic small companies, our traditional jobs engine, are not doing well enough to create their usual jobs; the large corporations such as GE are creating jobs . . . overseas) as well economic reasons that result from the policy decisions made. The net result is 'no jobs for you' America.

The typical, and indeed unfailing, track for the unemployment rate has repeated recession after recession and recovery after recovery. Unemployment moves higher about the time we figure out we are in recession (usually months after the slowdown started). It continues to rise as the recession progresses at a rather steady pace. Then when it looks as if the economy is improving the unemployment rate suddenly spikes. Why? Because people are encouraged by the better economic numbers and re-enter the workforce looking for jobs. As employment lags the economy, however, they are disappointed and drop out and the rate falls. But the rate typically remains lower after that because jobs are then indeed created (again, they lag the economic recovery), and those re-entering the workforce are absorbed as they find a job.

This recovery, now 18 quarters out from the start of the downturn, has yet to put in one quarter of 4% or better economic growth. Only four quarters have been at 3% or better. Typical US recoveries see 7%, 10%, 12% quarterly GDP growth rates, particularly when the recessions are as deep as this one. In the early 1980's we experienced quarter after quarter of 10+% GDP growth during the recovery. Some apologists for the Administration argue that this recession is worse. Worse than 14% unemployment? Worse than interest rates at 15+%? Worse than inflation in double digits? The late 1970's and the early 1980's were much worse than we have now, yet the recovery was MUCH faster and MUCH stronger.

This recession has continued for so long with so little growth and so few jobs that it is structurally changing the US jobs picture. The President wanted an export economy so his policies benefitted large multinational companies so they could improve their markets to foreign countries. Their exports of goods and services were indeed up. Their exports of US jobs were up as well. GE, a major beneficiary of the Obama economic scheme, lined its bottom line with stimulus dollars, at the same time increasing its foreign workforce by tens of thousands while reducing its US workforce. It also makes a lot of stupid commercials with our bailout money, e.g. the idiotic 'So without your turbines there wouldn't be any Bud?' commercial that even a second grader sees as asinine (it may not be the exact dollars, but the money we gave GE made the profits that make the commercials. Now THAT would be a commercial I would like to see).

Yet the President displays public frustration that the companies he helped make record profits and huge cash stockpiles through his policies that favored this select group won't hire workers in the US. His regulations push new companies to open and IPO in foreign lands. His domestic policies of taxation, regulation, increased cost of business (small business costs up over 1,000% through Obama-era regulations) drive companies away, force them to contract just to stay alive (i.e. lay off workers), or worse just go under.

The historically great economic engine of the US, its small business sector, was crushed in the recession and remains a husk of its former activity simply because the business climate in the US fostered by this President's policies is openly hostile. As a result, the historic creator of US jobs and innovation, the small business, is nowhere to be found in this 'recovery,' and as a result we have no new jobs. It is the height of ignorance to gnash your teeth over companies you helped create piles of cash because they won't go out and spend that money. Why would that be the case? Because the economy is not heading in the right direction and thus those companies want to hoard their cash that they were lucky enough to get. That is so obviously clear yet it is so misunderstood by this Administration.

My last comment above somewhat let the cat out of the bag in terms of the conclusion, but you were already getting to that point anyway, right? Why would there be no hiring with a certain group of companies loaded with cash and others, the smaller businesses, literally dying to get some kind of economic activity going?


'What if this is as good as it gets?' asks Melvin. 'Oh my!' responds another patient.

Either recovery has not started (all Fed liquidity as said before), started but so weak cannot produce jobs (a symptom of a liquidity induced rise), or under these policies this is, as the Jack Nickelson move was called, 'As Good as it Gets.' I posit this recovery is all three.

First, as I have discussed in prior reports over the months, a 2.5% GDP economy is what you get when the central bank floods the economy and financial markets with liquidity. The Obama stimulus never worked. It went to favorite companies, friends of the administration, bundlers, etc., and was here and gone without any economic bump. No, it was the money flood that propped up the economy. You get appreciation in financial assets because the economy is not strong enough to use the money (money velocity remains at record low levels in the US to this day in the 'recovery') and it is put into financial markets. That purportedly creates a 'wealth effect' as Bernanke said he wanted, but as we know from the Greenspan era, the Fed admitted it wasn't even sure if a wealth effect really is supported by the empirical data (recall when the Greenspan Fed asked for people to submit data that would support the theory of a wealth effect? This AFTER it crashed the market and the economy in its quest to forestall inflation that never ever showed a sign of sparking. Ironically this is exactly what the 1929 central bank did.). In any event, asset prices are higher, and all of the excess wealth did create residual economic activity.

Second, even as Bernanke has noted, this is not sustainable economic activity. The massive liquidity injections from QE1, QE2, and the continuing of the money huge Fed balance sheet and money supply levels under Operation Twist (by the way, also tried in 1961) may have kept the economy from dragging bottom (though would it not have been better to let it fall, clear out, and then recover in health?) but that is a far cry from producing sustainable, even close to robust growth. With that kind of environment are the big companies going to spend their money on needless or questionable hires? Can the small businesses who see no growth and are just struggling to stay alive going to go out and hire in those conditions? I have to laugh about the $5K credit for hiring someone; who will hire to get a $5K credit when they have to come out of pocket for even a $25K salary for a new hire, not to mention training costs and other associated non-salary costs? Short answer: no one. Thus the economic activity, as the economists and historical data tells us, is nowhere near the level needed to create enough new jobs. When you realize that the lion's share of the 2.2% GDP read in Q1 was from consumer spending on a warm winter, you see that businesses have even less reason than usual for spending on jobs.


Don't take offense . . . saw it and could not resist.

Third, as noted above, this administration is so blind to understanding what costs are associated with its policies and regulations and the inability of small business to absorb those costs that it fails to realize (or perhaps does realize and is content) that the great economic engine of the US has been terribly damaged, such that if we do not change course within the next year it may never recover. The policies and regulations in place drive business away to open in other countries. It drives innovation elsewhere. It does not provide us and our progeny with the opportunity we have always had: starting our own business with a better idea or a better way. When you regulate as Europe, you become Europe. Europe's greatest crisis right now is not its current debt situation, but the lack of a historical capitalistic, entrepreneurial spirit that we have in the US. If we lose that we are not only Japan, we are Europe.


Austerity they say does not work, citing Europe as the example. But is austerity the issue?

Jared Bernstein, a democratic economic strategist, was on CNBC Friday morning, and to his credit Mr. Bernstein lamented the lower unemployment rate as not a good indication and that there was very little positive in the jobs report.

But, it had to happen, he had to revert to his roots. He went on to say that what the European woes and the weak US jobs report show is that austerity does not work and thus the last thing the US should do is cut spending. So much for rational thought on the subject.

I have discussed this before, but given it is really picking up in the public discourse it is worth discussing again: comparing the US to Europe in terms of austerity is a non sequitur. Europe has no free enterprise, capitalist background. Decades of socialism and government control and regulation has snuffed out or severely retarded the entrepreneurial spark. It is not that people don't want to have their own businesses, it is just practically impossible to create one given the crushing regulation and red tape. Thus it has been replaced by government as the primary spender and employer, and that is why when they talk austerity in the EU there are riots because the largest employer by numbers is the government. Without it there is little hope for any other opportunity.

The US is wholly different. Government growth the past three years is staggering, and on top of 50 years of explosive federal growth things are not well here either. But, we still have that entrepreneurial spirit and history; if we remove the roadblocks, regulations, restrictions, etc., our economy would indeed surge again.

What Mr. Bernstein and others miss is that the huge federal and Fed spending during this crisis has not helped the economy, but HAS PREVENTED it from recovering as energetically and robustly as it normally would. Thus MORE spending is NOT the answer. Indeed federal spending growth rates have far outstripped the rate of climb in healthcare, college, and other costs cited daily as the culprits behind our deficit. No, we just spend too much on too many things the federal government has no business spending on. Cutting federal spending and letting citizens keep more of their earnings would, as it did in the 1960's and as it did in the 1980's, trigger a new wave of entrepreneurism: US citizens are ready, able, and willing to do it on their own yet again.

Now go do that voodoo that you do so wellllll!!

We need the government to get out of the way, remove the obstacles, let us keep our money, and then as Harvey Korman said in 'Blazing Saddles,' do that voodoo that you do so well!

But . . . there is even a bigger issue.

What I kept waiting for the Republican commentator to say was that austerity was not the clear case study in recent economic history. No, what we have a front row seat to is what should be the lead chapter in any Economics 101 textbook: How Keynesian Economics Failed in the Real World Yet Again.

Why are EU governments forced into austerity and why are US states and municipalities (because unlike the federal government they cannot print money) waging massive battles regarding pensions and benefits that can never ever be paid? Because they, unlike Odysseus, ate the Lotus flowers.


They were beguiled to believe that government could provide all necessary goods and services and all the people had to do was go to work and pay their taxes. They would be cared for. As Margaret Thatcher's famous line states, however, 'the problem with socialism is you eventually run out of other people's money.'



I miss the 'iron lady.' She had it right. We have seen that too much government and too much government spending and intervention create catastrophic events. Here in the US we pushed home ownership, Bush, Schumer, Frank, etc. even when it was clearly unaffordable. Then when things started to crumble we spent hundreds of billions, indeed trillions, and all we get is a 2% economy with 115K jobs supposedly created?

No the track record is clear: taxing and spending by the government in places it thinks is best is no substitute for letting the entrepreneurs keep their money and put capital where it wants to flow. Whenever in history we go back to those ideals the US is clearly the strongest country on earth. Kennedy in the 1960's (before Johnson ruined things with the Great Society) and Reagan in the 1980's are recent examples of how well we do when we unleash the US citizen.








THE MARKET

SENTIMENT INDICATORS

VIX: 19.16; +1.6
VXN: 21.1; +1.91
VXO: 18.82; +1.94

Put/Call Ratio (CBOE): 1.07; +0.12

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: 43.0% versus 41.9%. Trying to bounce but still well off the recent 44.1% and 48.4% readings three and four weeks back. The stems the full run to the downside, bouncing at the March low. Still over 35% (below which is considered bullish) but dropping fast. Ironic, eh? Just as the market found support to bounce the bulls ran. 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: 20.4% versus 23.7%. Hefty decline, indeed below the 21.5% hit four weeks back. How could so much optimism return in just one week of advance? It did, but of course this next move and the jobs report will likely splash cold water on the Bear's loins. That will give you a nasty disposition. Have to get over 45% to really be a good upside indicator and it is heading in the wrong direction. Thus the contrary worry it stirs. Are investors too complacent with the market facing all of these issues? Below late March, and that was down from the 25% to 26% level it held for weeks. 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: -67.96 points (-2.25%) to close at 2956.34
Volume: 1.915B (+4.3%)

Up Volume: 186.03M (-93.07M)
Down Volume: 1.74B (+160M)

A/D and Hi/Lo: Decliners led 3.78 to 1
Previous Session: Decliners led 2.83 to 1

New Highs: 35 (-52)
New Lows: 93 (+25)


SP500/NYSE

Stats: -22.47 points (-1.61%) to close at 1369.1
NYSE Volume: 747M (-2.99%)

Up Volume: 544.6M (-241.62M)
Down Volume: 3.39B (+240M)

A/D and Hi/Lo: Decliners led 3.04 to 1
Previous Session: Decliners led 2.35 to 1

New Highs: 55 (-69)
New Lows: 54 (+13)


DJ30

Stats: -168.32 points (-1.27%) to close at 13038.27
Volume DJ30: 114M shares Friday versus 102M shares Thursday.


MONDAY



Another week and more economic data. It is not quite as important as this past week, but nonetheless significant. On Wednesday we have wholesale inventories. We will see whether or not some of this manufacturing data holds water. Of course this is March, so it will not really apply to what we saw in the ISM for April. But it will have a bearing on the Q1 GDP. We will see if it is written up or written down as a result of inventories. Then when have the initial claims on Thursday, important given the surprisingly precipitous drop this past week. On Friday we have the PPI where the government can tell us that producers are not experiencing any increases in costs. Then we have the Michigan Sentiment where they can tell us that they are still happy because there was no winter up there. That is always a positive for those in the Great While North.




There will still be plenty of earnings out. It is not just a January, April, July, and October event anymore. They are pretty eventually spread out all the way into the following month. We have some significant results still to come. There are also your astronomical issues. Art Cashin noted on CNBC that there will be a super moon tonight. It is 42% larger than normal, and it will impact tides. They will be much higher than normal or much lower depending on what side you are on. And since humans are 70% water, we could have some very strange things going on in our bodies. He notes that this also occurred in September 2011. What do you know? And the Israelis have supposedly called up some emergency troops because there is unrest in the Sinai. You always have that geopolitical intrigue to go along with Fed invention, more spending by the federal government, etc. You get the picture.

As for the market itself, we had significant downside on Friday, obviously. The jobs report was not well received. But I noted earlier that it looks as if this is a case where the indices will trade back down toward those 2011 highs, but unless the ECRI is correct and there will be a recession coming, then they should hold those levels. Maybe anticipating that the Fed has to do something, or maybe just building in more good will for the future. After all, the market has risen quite a ways. While the results are related to liquidity versus economic prospects, they have continued to hold the gains. Last year we got this eurozone meltdown that broke them lower, but now we will get to see if there is some staying power. Yes, the indices may fall back down, but they may just range trade as well, as they did back in 2011. The logical place to do that is right on top of the prior highs. I am looking at NASDAQ. Of course that makes sense for it to try to do that.

The issues? Of course we have the SOX, and it is breaking lower. But it is coming down to a key support level even though it is well within its range. That is okay. It will range trade, perhaps inside of its range. That is pretty much my thesis going forward until we see something different. Things are not beautiful in terms of the indices, but they are not necessarily falling apart. As noted before, there is still significant leadership in health care, drugs, and even internet stocks. Some of the leaders have pulled back, but they still have very good patterns.

We will continue to use pullbacks to look for opportunities to enter into. We may not get them near term. We may have a problem with the market falling further. It was, after all, a pretty ugly decline on Friday. There may be some follow through to the downside. If we get a bounce higher to start the week, we might be able to use that to our advantage and pick up some downside plays and play it back to the support level. In other words, if SP500 bounces up toward the 20 day EMA and then wants to roll back over, we will be able to pick up more downside. We already have some that we picked up this week and others that we are riding lower. We can, again, augment that position to take what the market gives while it trades back and forth. It still has room to come down. That is, if it bounces.

If it continues to sell, we may or may not have some positions that we can move in. We have found some downside plays that we can still enter into. We will just see how things open. A little bounce and then a rollover would be better for the downside. We are looking at a range trade until proven otherwise. That means we see some good stocks that could still make great moves to the upside given a pullback or just completing their bases. We will look for that as well. If we are in the same boat that we were in in 2011, ignoring this eurozone meltdown (of course I cannot say that will not happen again, but we will cross that bridge when it comes), we could have a trading range. From the looks of it, we have a very similar range. It may not have the amplitude of this one, but it is still fairly significant.

Again, we look for trades we can make inside of this movement over the 2011 peaks. That will provide plenty of opportunity for us. We just want to make sure we get good setups and do not chase moves that have already been made or overly anticipate moves. There is that old saying, "let the moves come to you." If they run away from you, then they run away from you. If they set up and get to you, then jump all over them because that is your chance to make some good money.

I will see you on Monday. Have a great weekend!


Support and Resistance

NASDAQ: Closed at 3024.30

Resistance:
3026 from 10/2000 low
3042 from 5/2000 low
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 50 day EMA at 3002
3000 is the February 2012 post-bear market high
2910 is the recent March 2012 low
2900 is the March 2012 low
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.
The 200 day SMA at 2735
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
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low


S&P 500: Closed at 1391.57

Resistance:
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:
1378 is the February 2012 peak
The 50 day EMA at 1378
1371 is the May 2011 peak, the post-bear market high
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
1318.51 is the May 2011 low
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
The 200 day SMA at 1276
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
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low


Dow: Closed at 13,206.59
Resistance:
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:
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 13,009
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,176
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

May 4 - Friday
Nonfarm Payrolls, April (8:30): 115K actual versus 162K expected, 154K prior (revised from 120K)
Nonfarm Private Payrolls, April (8:30): 130K actual versus 167K expected, 166K prior (revised from 121K)
Unemployment Rate, April (8:30): 8.1% actual versus 8.2% expected, 8.2% prior
Hourly Earnings, April (8:30): 0.0% actual versus 0.2% expected, 0.2% prior
Average Workweek, April (8:30): 34.5 actual versus 34.5 expected, 34.5 prior


May 7 - Monday
Consumer Credit, March (15:00): $11.0B expected, $8.7B prior

May 9 - Wednesday
MBA Mortgage Index, 05/05 (7:00): 0.9% prior
Wholesale Inventories, March (10:00): 0.6% expected, 0.9% prior
Crude Inventories, 05/05 (10:30): 2.840M prior

May 10 - Thursday
Initial Claims, 05/05 (8:30): 365K expected, 365K prior
Continuing Claims, 04/28 (8:30): 3288K expected, 3276K prior
Trade Balance, March (8:30): -$49.9B expected, -$46.0B prior
Export Prices ex-ag., April (8:30): 0.5% prior
Import Prices ex-oil, April (8:30): 0.5% prior
Treasury Budget, April (14:00): -$40.4B prior

May 11 - Friday
PPI, April (8:30): 0.0% expected, 0.0% prior
Core PPI, April (8:30): 0.2% expected, 0.3% prior
Michigan Sentiment, May (9:55): 76.2 expected, 76.4 prior



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

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

Technorati tags: