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