Stocks Answer Thursday with Solid Rebound

MARKET SUMMARY:

- Stocks answer Thursday with a solid, albeit modest in comparison, rebound.
- Indices up but still below key levels after the Thursday selloff.
- Commodities bounce, but it is weak, much weaker than stocks overall.
- Friday was light on data but what was out there was not positive.
- A western hemisphere economic power and China agree not to use dollars.
- Recent leadership, big name leaders still look quite savory.
- Earnings results and warnings are upon us and the early tabulations leaning heavily toward misses.
- Stocks bounce, still look good for an upside move, just need the leaders to keep their patterns moving.




Close but no cigar. A good bounce Friday in response to the selloff, but still hills to climb.

Stocks rebounded on Friday after the Thursday gut punch. It was a solid and credible rebound, although it paled in comparison to the selloff on Thursday. Moreover, NASDAQ and the SP500 failed to take out the 50 day EMA. SP500 failed to recapture the range it had on Tuesday but gave up on Thursday. NASDAQ just cracked above the range of resistance but failed at the 50 day EMA. Close but no cigar. I am not talking about the infamous Bill Clinton cigar; I am talking about Big Jake, the John Wayne and Richard Boone movie. John Wayne looked as if he was beaten, and Richard Boone said, "Close but no cigar, mister," referring to the fact that John Wayne almost pulled it off. Of course the Duke made the comeback, rescued the kid, got the gold back, and just about righted all the wrongs in the world. Your typical John Wayne movie.


No, not THAT cigar.


Richard Boon in 'Big Jake': 'Close, but no cigar mister.'

The day may have been close but no cigar, but it did what it needed to do. In the face of that Thursday selloff, stocks rebounded and put in a credible move. More than that, the stocks we have been watching in the biotech area, drugs in particular, and the household name-brand leaders which started to lead the market back to the upside did pretty well. Looking at biotech, NKTR bounced to the upside on a good volume surge. That might have something to do with the Russell rebalance on the day. At the end of the day the Russell indices were rebalanced, and that caused a lot of buying and selling of stocks within those indices based upon their valuation increases or decreases. That ramped up the volume on the session similar to an expiration volume.

We did see good moves in the biotech drugs. We also saw the good moves in other stocks that have been leading the move but that took a hit on Thursday. CMG bounced where it needed to off near support. PCLN held the line where it needed to and bounced. These are not huge moves, but they are doing what they need to. ISRG had a nice bounce to the upside off of the test. That is exactly what we needed to see happen, and it bodes well for the attempt to continue this move off of the Thursday selling.

On Thursday night I stuck my neck out and said I still believe the market would try to rally again before any major selloff to the downside. It still feels that the Fed has to announce some kind of Quantitative Easing or further liquidity stimulus, so I think we will get that rally to the upside. It is just a question of how far it will go. I do not think it will break into new high territory; I think it will just test them. That will probably be it. Then the market turns back over and starts selling toward a late summer/early fall US economic recession. Glum news for a Friday, but you have to call it as you see it. Otherwise you get blindsided or the old Field of Dreams "in your ear."

Looking at the intraday chart, there is something of a parabolic move from the Thursday selloff into the Friday rally, but it is quite lopsided. The moves upside on Friday are nowhere compared to the downside slump on Thursday. Nonetheless, stocks put in a somewhat choppy morning but found their footing at lunch. Then they rallied nicely into the close, putting in a decent move and completing the week doing what it had to do. That was to come back against that Thursday break higher.

SP500, +0.72%; NASDAQ, +1.17%; Dow, +0.53%; SP600, +1.28%; SOX, +1.59%.

On any other day, those would be very good numbers. Juxtaposed against the Thursday 2%+ selloff, however, they do not look that stellar. The indices and individual stocks did what they needed to do, and that was to bounce some from the Thursday selling. The question is whether they will continue the move into next week or run out of juice. They are at a critical level. We saw SP500 at the 50 day EMA, bumping up against that important level. Lots of work to do, but at least it gave itself the chance to do it. That is what counts, at least for Friday.

There was not a lot of news on Friday. What was out there was not that positive. German business confidence hit a two-year low and was down for the second month straight. We also have to remember that the various and sundry banks were downgraded on Thursday evening by Moody's. But they had a decent day. BAC tapped its 50 day EMA on the low and rebounded with a decent gain. Financials overall did quite well. MA had an outstanding move. You have a double bottom with handle on the lower trendline of its ascending channel. It broke nicely to the 50 day EMA.

There was not an overall negative reaction to the downgrades. As I said on Thursday, that could mean the bottom for financials for now as they rally to the upside with the overall market bouncing. It does not mean they will continue the move and break to new highs, but it very well could mark the bottom for this round of selling. They look pretty good.

Earnings misses and warnings in all the wrong places.

Darden Restaurants miss on earnings, same store sales, lower guidance.

Olive Garden chefs sample the sauce.
'It needs something . . . '
'Yeah, someone to eat it.'

Other news out there was bothersome. It is that string of earnings and warnings that we have seen. DRI (Olive Garden and Red Lobster) missed on earnings. Same store sales were quite low, and it lowered its guidance. In the picture of Olive Garden chefs sampling the sauce, one says, "It needs something." The other says, "Yeah, someone to eat it." Apparently do not have as much traffic at the stores as consumers feel the pinch of zero wage growth. It is actual negative wage growth when adjusted for inflation. They have used their savings; they have taken what they could from their houses, and now their houses are worth much less. Their wages just are not growing to keep up with prices.

You can only spend for so long when you are spending at a deficit, particularly when you cannot get credit. We have tons of potential liquidity, but it is similar to Tantalus in Greek mythology. He could not reach the grapes or apples, and when he bent down to try to quench his thirst with water, it receded below him. Of course there was the classic Star Trek "Dagger of the Mind" on the Tantalus colony.


Tantalus: All you could want, but you cannot reach it.


A Star Trek classic, 'Dagger of the Mind' on the Tantalus colony.


We have tons of liquidity. We do not have a liquidity problem in the world and in the United States; we have an inability to reach the liquidity. Mortgage lending standards are too high. Lending standards to small businesses are too high. That is always the case whenever we try to come out of a recession. The banks, financial agencies, and overseers learn their lesson after the cows have left the barn. They make standards tough after we have crashed and when we need the money.

I have talked to several small businesses, and WFC has contacted them recently about small loans. Many of them said, "We tried to get a small loan from you a year or two ago, but you turned us down." The people from WFC act astounded that that could have possibly happened. That is just the way it is. They say one thing, but you cannot get the money. We have heard this over and over again. Thus our economy stumbles along. There is no money if you want it, and there is the uncertainty with the debt crisis, the fiscal crisis, the tax crisis, and with the health care tax crisis. Small businesses just do not feel that confident with hiring. Is there any wonder there is no hiring? You can see it. You want it but you cannot have it. That is kind of like the President. He does not understand why businesses will not hire when the ones apparently seem to have the money.

Getting back to the market, the indices did what they had to do, albeit not in a spectacular move that took back key levels.







OTHER MARKETS.

Dollar. 1.2560 versus 1.2557 euro. The dollar was about flat on the session, losing a bit of ground. It was up and then down. It closed losing just a bit of ground, basically flat on the day. It was a big move on Thursday. Why? Because no Fed intervention and no cheapening of the money. Therefore it recovered some of the losses of the prior three weeks.


Bonds. 1.67% versus 1.61% 10 year US Treasury. Big losses as bonds fell below the 20 day EMA. They did remain in the three week lateral move. Not too much of an issue. The thing is, if there is no worry in the rest of the world, there is no need to run to safety in the US Treasury market. If there is fear, you will see treasuries rally and yields decline. There was not too much fear out there on Friday. There was not too much fear of the Fed buying either as bonds gave up fairly substantial ground on the 10 year.


Gold. 1,566.80, -1.30. Gold was utterly pounded on Thursday. It managed the most modest of rebounds, showing a doji right at the close from Thursday. It may very well be a continuation doji; in other words, it continues lower. Although the gold price is down four straight sessions, and perhaps after a selloff near the bottom of the range, it would be ripe for a rebound.

This all depends on what the Fed will do with the dollar. If it wants to gut the dollar with more Quantitative Easing, then gold will surge. Many people anticipate that gold will surge higher. The problem is the interim. What will it do? I will say that gold is safe inside the range that has formed off of the mid-May low.


Oil. 79.73, +1.53. Oil rebounded. It was beaten badly on the week, falling sharply on Thursday and Friday. It did manage to break through a support level that extends back to the summer of 2011. It rebounded on Friday, but it was unable to take back that level. The indices were unable to take back certain key levels that they gave up after they just took them on Tuesday. So they really did not want them. No follow-through. I will talk about that in the charts.

We will look at what happens to oil next week. It has rebounded up to resistance after breaking below the bottom of its two and a half week range, a range that looked quite solid. The bottom caved and it is testing now. What are the odds that it will break higher? Not much, particularly if the dollar remains relatively strong on no Quantitative Easing. If the dollar breaks, we could see oil rebound. As the dollar falls, it takes more dollars to buy every barrel of oil.


More on the dollar: Brazil and China agree to a currency swap.

For this discussion, please see the Video Market Summary.


Here's to the renmimbi. Brazil and China agree to a currency swap.
First in western hemisphere and the largest economy to do so.



Cashin: Cannot raise rates or let them rise as our debt would surge. We have covered this before. If the 10 year rose to 4% our debt would triple or more. Whether he wants to or not Bernanke is forced to manipulate rates.





TECHNICAL SUMMARY

Internals

Volume. NASDAQ +27%, 2.25B; NYSE +6%, 832M. Why the lopsided volume? A lot of the Russell stocks trade on the NASDAQ, and there was a rebalance on Friday. That means a lot of buying and selling in those stocks as portfolios are adjusted to reflect the market cap percentage of each of those stocks in the new readjusted indices.


Breadth. NASDAQ 2.4:1; NYSE 2.2:1. Breadth was decent.


THE CHARTS

SP500. You can see that inverted head and shoulders. You can also see that Thursday tried to break up the whole pattern. It cast the move right back down to the neckline. Stocks bounced where they had to on Friday but did not get through the 50 day EMA or that February 2011 peak. SP500 has a lot of work cut out for it next week. I still believe that looking at the strength of a lot of the brand names as well as the sectors that are getting money (biotech, drugs), SP500 could bounce. Financials are still getting money, and that is so key for SP500.


DJ30. Not really a different tale here. The 50 day EMA is still blocking it. Same drop, holding at the neckline as well. We just need to see a break to the upside. It most likely follows SP500 if it moves.


NASDAQ. NASDAQ showed the same action. Up to the 50 day EMA, just cracking into the higher trading range, but it was nothing significant. No real break here. It is too close to make a call that it broke back up. We see the same action with the inverted head and shoulders. We also see solid action from a lot of big NASDAQ stocks that look ready to move higher. If they move higher, NASDAQ moves higher as well.


SP600. SP600 bounced off of the 200 day EMA, put in a decent percentage gain, but they are still mired in their pattern. Definitely followers and not leaders. With the economy struggling as it is, that makes a lot of sense. SP600 will follow NASDAQ and company higher if they break higher. I do not believe it will lead because I am looking for a rollover in the market as they maybe challenge the prior highs. If that is the case, that would be in advance of a recession. Thus the small caps would not be really running hard in any event.


SOX. SOX bounced modestly off of support as well, but it did not put in that much of a move. It is at the neckline as well. It could bounce from here, but it never made it past this upper point of its resistance channel. I do not look for much from the semiconductors. It is not the time of year for them anyway, even if things were better and the prospects for economic improvement were better.


LEADERSHIP

'Name Brand' stocks. I noted that the NASDAQ leaders were still looking sold. PCLN looks good, and ISRG looks just fine. Of course there is the old standby AAPL. It continues to work on its pattern as well. There are still big names in NASDAQ that can rally and produce very nice gains for us.

Financial/Financial Services. It is not just limited to NASDAQ. There are financial and consumer stocks in the NYSE that look fine. MA had a great move. CME looks as if it is ready to bounce. V was blasting off to the upside in a new rally high. V could very well be worth taking a buy here even though it was up 4.5% on Friday. With a little pullback on Monday, it may be a good one to move into. There is strength in financials and financial-related companies on the NYSE. That tells you that the Fed is likely going to act based on the actions of these stocks that would do well with more liquidity pushed into the system.

Drugs. NKTR is looking good. HZNP gapped above the 200 day EMA. ARNA had a tougher day, but look at the move that it has had.

These areas are very hot because money is growing in their direction. We have the leadership groups of financials, biotech drugs, and then the big-name stocks that most people seem to love. They are all moving up very well.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Earnings outlooks are not looking so good.

It should not be surprising. The economy is slowing, companies are hiring even less, and companies are starting to warn and indeed miss on earnings. When China, India and Brazil were still expanding a two and three years back the US multinational corporations cleaned up. They were laying off, consolidating, and selling a lot of product overseas. They made a lot of money, kept a lot of it offshore, and had no reason to hire here. Remember, GE and many of its large cap brethren have been jobs losers for years even when they enjoy profit growth.

Now the story has changed. We are an export nation now as per the desires of our President. The small business, entrepreneur class has not only been neglected but openly attacked with a deluge of record keeping regulations that sap time and money from businesses who have neither to spend on intrusive and excessive government oversight. With taxes and particularly regulations, this government has stifled our small business class, the main creator of innovation and wealth in the US.

With the big economies our multinationals sell to slowing, so are profits. This time we don't have a small business class to fall back on and keep our economy growing. Exports drying up, no internal engine to grow the economy. Thus corporate profits, and outlooks, are heading south.



Pepsi, Federal Express, Phillip Morris, Procter and Gamble, Bed Bath and Beyond, United Technologies (industrial products) and now Darden (restaurants) have all either missed earnings, warned, or see a slowdown here or coming.

Thus far there are 3.6 warnings for every 1 raise of earnings expectations. That is the worst ratio since Q3 2001. A slowing world economy and a slowing US economy make comps to 2011 much harder. Expectations will need to be taken lower.

Before that, however, the market has a window to rally back up to or very near the prior highs before earnings season hits full bloom and spooks investors as to just how bad the US economy is getting. We want to play that move but we also need to be aware of the limits of a further rally. It can test the prior highs, hit them, even surpass them (particularly if another QE is announced), but we do not believe it can overcome the drag from the economic slowdown here in the US.


THE MARKET

SENTIMENT INDICATORS

VIX: 18.11; -1.97
VXN: 19.12; -1.66
VXO: 17.9; -1.89

Put/Call Ratio (CBOE): 0.99; -0.13

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: 37.2% versus 37.2%. Holding steady but it will be interesting to see how Thursday impacts next week's numbers. Bulls moved back over 35% after hitting 34% and below that key 35% level. The market moved on the fall. Now we see if it can continue. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit, but the firming has the bulls lifting their heads again. 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: 25.6% versus 26.6%. After two weeks at 26.6% bears fell. Market bounces do that. Unlike bulls, bears never did get close to the 35% level that is very bullish. It is always the best signal of bulls and bears cross paths so to speak. Not bad given the bulls action, but not the best signal. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +33.33 points (+1.17%) to close at 2892.42
Volume: 2.246B (+27.4%)

Up Volume: 3.2B (+2.941B)
Down Volume: 1.22B (-300M)

A/D and Hi/Lo: Advancers led 2.38 to 1
Previous Session: Decliners led 3.93 to 1

New Highs: 71 (+25)
New Lows: 53 (+4)


SP500/NYSE

Stats: +9.51 points (+0.72%) to close at 1335.02
NYSE Volume: 832M (+5.72%)

Up Volume: 4.18B (+3.914B)
Down Volume: 1.93B (-1.83B)

A/D and Hi/Lo: Advancers led 2.22 to 1
Previous Session: Decliners led 4.31 to 1

New Highs: 45 (-3)
New Lows: 39 (0)


DJ30

Stats: +67.21 points (+0.53%) to close at 12640.78
Volume: 210M shares Friday versus 146M shares Thursday.


MONDAY

We have a huge week next week. Huge. I cannot say that enough. Huge. Maybe that is enough. We have a lot of data. Consumer confidence, durables orders, pending home sales, Q1 GDP revisions. We also have personal income and spending, Chicago PMI, and the Michigan Sentiment final. On Monday we likely get the Supreme Court's ruling on the Obamacare case as well as the Arizona immigration case. These are such important issues facing us for the election as well as for the economy. It is so entwined and such a large part of our economy.

We will have earnings as well. As I have said, the earnings are worrisome because we have so many misses coming up. We have seen more misses now versus upside surprises. That is not really surprising given that everyone says profits are slowing down. The economy is slowing down. We are going into a recession in our view, so you expect things to slow. That does not mean the market necessarily has to fall because everyone thinks it will. I believe the market will try to rally into earnings, and then it will set itself up for a fall. I believe it will try to break back up, realizing that the Fed will have to act.

The Fed cannot worry about what the stock market is doing; it has to worry about what jobs are doing. Jobs are what it staked its claim on, so it will have a problem with jobs if there is an issue. We could see a move before the June/early-July jobs report. Why? Because the Fed gets it ahead of time. If it sees that things are bad, it may want to avoid a shock to the market and provide stimulus. There is risk. People might panic and say, "What is wrong with things?" But overall the market will like that because it wants more liquidity. It wants that extra Quantitative Easing stimulus. We could very well see that happen, but it will not happen soon. I believe the market will rise in anticipation of that event, however. There are just so many good-looking patterns from the household names and from other areas including financials, the biotech drugs, and a scattering of stocks here and there that continue to hold up well.

After we get a move to the upside, I am worried about a rollover. But we will play what the market gives us. When it starts to roll, we will probably naturally start migrating out of those just as we naturally started migrating into drugs and biotech as they started to perform better. That is just the way it works. We will be watching for positive, still upside moves. If things do not work out, we will have to have some downside. But when we have the good household brand names ready to move up, we want to take advantage of those because money tends to pile into them like crazy when they move. It is the same with the other areas that are still getting money. When money started to run into them, they can make impressive moves.

We have to worry about earnings coming down the road. When we to worry about more data coming down the road. We have to worry about Europe, no doubt. But the market understands all of that, and it is still holding up (albeit Thursday was a challenge). It anticipates liquidity as a result of all of this news. Additional liquidity will give us a move upside in the market. It will not be like QE1 or as good as QE2, but it is a move we can play. The market is setting itself up to continue back up to these prior highs. Maybe it breaks beyond them only to roll over from there. We will let the market tell us what it will do at that point, but we will continue to look for the good sectors that are moving well and the household names that are moving. We picked up some of those already last week. We will see if there are any others that we can get into or that can provide us a good entry point to take advantage while the market gives us the upside move. As noted, I do not think it will be there later in the summer. But the market will have its final say on that.

We will just get ready for the next one. It will be a big. It is history in the making. If you keep a journal, you will be writing a lot. There will be some very interesting stuff coming up. Have a great weekend!



Support and resistance

NASDAQ: Closed at 2892.42

Resistance:
The 50 day EMA at 2894
2900 is the March 2012 low
2910 is the recent March 2012 low
2962 is the April 2012 low
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:
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.
2810 is the low in the shoulders
The 200 day SMA at 2785
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 1335.02

Resistance:
1340 is the early April 2011 peak
The 50 day EMA at 1339
1344 is the February 2011 peak
1357 is the July 2011 peak
1359 is the April 2012 low
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:
1332 is the early March 2011 peak
1309 is the right shoulder low from June 2012
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 1295
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 12,640.78
Resistance:
The 50 day EMA at 12,679
12,716 is the April 2012 closing low
12,754 is the July intraday peak
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
12,369 is the left shoulder low from May 2012
The 200 day SMA at 12,350
12,284 is the October 2011 peak
12,258 is the December 2011 peak
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

June 18 - Monday
NAHB Housing Market Index, June (10:00): 29 actual versus 28 expected, 28 prior (revised from 29)

June 19 - Tuesday
Housing Starts, May (8:30): 708K actual versus 719K expected, 744K prior (revised from 717K)
Building Permits, May (8:30): 780K actual versus 725K expected, 723K prior (revised from 715K)

June 20 - Wednesday
MBA Mortgage Index, 06/16 (7:00): -0.8% actual versus 18.0% prior
Crude Inventories, 06/16 (10:30): 2.861M actual versus -0.191M prior
FOMC Rate Decision, June (24:30): 0.25% actual versus 0.25% expected, 0.25% prior

June 21 - Thursday
Initial Claims, 06/16 (8:30): 387K actual versus 380K expected, 389K prior (revised from 386K)
Continuing Claims, 06/09 (8:30): 3299K actual versus 3278K expected, 3299K prior (revised from 3278K)
Existing Home Sales, May (10:00): 4.55M actual versus 4.56M expected, 4.62M prior
Philadelphia Fed, June (10:00): -16.6 actual versus -0.2 expected, -5.8 prior
Leading Indicators, May (10:00): 0.3% actual versus 0.0% expected, -0.1% prior
FHFA Housing Price Index, April (10:00): 0.8% actual versus 1.6% prior (revised from 1.8%)

Next week

June 25 - Monday
New Home Sales, May (10:00): 350K expected, 343K prior

June 26 - Tuesday
Case-Shiller 20-city Price Index, April (9:00): -2.5% expected, -2.6% prior
Consumer Confidence, June (10:00): 64.0 expected, 64.9 prior

June 27 - Wednesday
MBA Mortgage Index, 06/23 (7:00): -0.8% prior
Durable Orders, May (8:30): 0.5% expected, 0.0% prior (revised from 0.2%)
Durable Orders -ex Transports, May (8:30): 0.7% expected, -0.9% prior (revised from -0.6%)
Pending Home Sales, May (10:00): 0.5% expected, -5.5% prior
Crude Inventories, 06/23 (10:30): 2.861M prior

June 28 - Thursday
Initial Claims, 06/23 (8:30): 385K expected, 387K prior
Continuing Claims, 06/16 (8:30): 3290K expected, 3299K prior
GDP - Third Estimate, Q1 (8:30): 1.9% expected, 1.9% prior
GDP Deflator - Third, Q1 (8:30): 1.7% expected, 1.7% prior

June 29 - Friday
Personal Income, May (8:30): 0.1% expected, 0.2% prior
Personal Spending, May (8:30): 0.1% expected, 0.3% prior
PCE Prices - Core, May (8:30): 0.2% expected, 0.1% prior
Chicago PMI, June (9:45): 52.4 expected, 52.7 prior
Michigan Sentiment - Final, June (9:55): 74.1 expected, 74.1 prior

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

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Reverse Prior Week's Losses

MARKET SUMMARY:

- Stocks not dead after Thursday reversal, post a steady come from behind move to reverse prior week's losses.
- Friday's fears not that fearful and investors comfortable holding stocks over the weekend.
- Gold suffers a down week but ends it looking as if it wants to bounce.
- Best weekly move of the year, lowest volume of the year.
- SOX, NASDAQ sport small island reversals as all indices complete two-thirds of a potential inverted head and shoulders.
- 'The economy is fine' and other incredible statements of the week.
- Already in recession?: part 2. Others coming around to ECRI's wage evaluation . . . finally.
- Trucking fuel usage jumps in May.
- Big weekend: Eurogroup meeting, China economic data, and Spain, after hours Friday (and 11p.m. Spanish time), balks at bank bailout conditions.
- Weekend data will help set the stage as indices try to continue the rebound, but the patterns just don't look great.

Stocks finish strong, just in time apparently.

Stocks proved that they are not dead after the Thursday reversal. Indeed, they posted a straight-ahead, come-from-behind move early to reverse last week's losses and post a very nice upside bounce on the week. Stocks finished strong, apparently just in time. Bear Grylls is the "Man vs. Wild" guy. My sons and I like him. His motto, which his grandfather taught him, is "Finish strong and finish five minutes early." It looks as if it was just in time for the market. After the close, Spain announced that it had issues with some of the requirements necessary for its bank bailout. That may be a problem come Monday. We will see how the weekend handles it because a lot of news is coming out between now and then. That includes a boatload of Chinese data as well as more news from the EU as they meet on further plans.


Bear Grylls: Finish strong, finish 5 minutes early . . .
Bear: Hard worker, risk taker, dream pursuer. The antithesis of the current administration.

Bear is quite a guy. He is a hard worker and a risk taker. He is a dream pursuer. He is kind of the antithesis of the current administration.

There were some worries on Friday, but they were not enough to stall the recovery for the week.


McDonald's missed same store sales estimates on a weak Europe and China.

The arches of MCD were a bit battered as it missed its same store estimates on a weak Europe and a weak China. Imports and exports declined, and that is not a good sign for the economy. Why? Historically, when we import a lot of goods, that means the economy is doing fine. We are an exporting economy now as our President wanted. The problem is, as MCD found out, China and Europe are not that strong. If you throw in India and Brazil, as I have said all week and in weeks past, if those go down, we do not have anyone to sell our goods to. That is the heartache of being an export economy: when your buyer does not want to buy. Australia is finding that out as a big commodities producer. It sells, a lot of them to China, but China is canceling contracts before they ship or even when they are already on the boat and headed their way. It seems all d that China is interested in buying is gold right now. It bought 100M pounds from Hong Kong in the past month. It looks like it will have to take further advantage of the drop in gold price over the past few weeks.

Imports/Exports both decline, not a good sign for our economy.



On the upside . . .

On the upside Friday, there was apparently hope for Spain. I do not know what prompted it other than there is talk of the bailout. We find out after hours that Spain has some issues with that. There are more discussions to be had this weekend to help figure out what they will do with the Spanish economy. It looks to be falling as well.

Perhaps we need to think bigger picture. Maybe Alberto Contador (Spain) after his two-year dope suspension ends in August -- the suspension that stripped him of his 2010 Tour de France title --maybe he will be back in the saddle in August and provide Spain with its true hope. Remember, in bad economic times we smoke cigarettes, we drink liquor, and we look for releases whether it is in movies or sporting events. Looks like Spain might be taking a look at Alberto.

Hope for Spain?

Alberto Contador's (Spain) 2-year doping suspension that stripped him of his third Tour de France title ends in August. Looking at Spain's issues, he may be the only hope the country has.

U.S. wholesale inventories rose. That is not bad news either because sales rose 1.1% as well. The 0.6% increase can be disturbing if it is because no one is buying. But a 1.1% increase is almost three times the rate in March. It looks like a pretty good number. We have a couple of decent economic reports on the week after a string of misses. Inventories go into the beat side of the category as well.

US Wholesale inventories rise but sales also rise.



The market performed pretty well the session. With a low-to-high move starting soft, starting negative, but reversing and rallying to the upside. It is interesting see investors still ready to buy before a weekend session and a week of upside moves, particularly after they threw back the gains from Thursday. Then it looked as if the market was ready to reverse to the downside.

SP500, +0.81%; NASDAQ, +0.97%; Dow, +0.75%; SP600 +1.09%; SOX, +1.43%.

Solid gains. Not breakneck, but very solid and a great way for the upside to cap a week of gains. These are gains that recovered most of the losses from the prior week. SP500 was higher, but it just gave them all away. Nonetheless a very credible recovery. As I will talk about in the technicals, there were issues with the move, but that has been this market all along. Of course, looking at the action you can understand that weak internals have not led to continued gains of late.


OTHER MARKETS.

Dollar. 1.2499 versus 1.2600 euro. The DXYO chart shows the dollar down, but that is against a basket of roughly 25 currencies. It is not just euro-centric. Nonetheless, the euro plays an important role, and the dollar was up against the euro on Friday. Overall, the dollar is taking a nice week-long pullback to the 20 day EMA. It looks very solid. At least solid in terms of continuing the move higher. Why would it do that? Simply because the Fed did not opt to be any more dovish with respect to stimulus. Bernanke basically parroted the same statement he has had of late: "We have a gun and we are ready to use it if necessary. But now is not the time to use it." We see a nice pullback to support by the dollar. It broke out of the December-May pattern. It did so in mid-May. It has come back to test. It is in perfect position to rally yet again.


Bonds. 1.64% versus 1.65% 10 year U.S. Treasury. Premarket the 10 year bond was at 1.57% and showing a very solid gain on the session. The week saw bonds give back the move from the prior week's worries about the jobs report propelled bonds to the upside. This week they came back to test. When Bernanke did not offer any more stimulus or reasons to buy bonds, they kind of stalled out. They tried to move and bounce off a test of support. They just could not close it out on the day. Still in position to move higher, however.


Gold. 1,591.70, +3.70. Gold is very interesting. It was down big on the day. It was again down big premarket after that huge 40+ point drop on Thursday. That drop resulted from Mr. Bernanke's lack of any new stimulus or hope of any new stimulus offers. It was down on the week thanks to Thursday, but it looks as if it wants to bounce right back up. A big reversal with a doji with tail from the midpoint of its second range where it tapped resistance. This was in the form of the week-long lateral move in the third week of May. It held and bounced to the upside. It acts as if it wants to move right back up.

Maybe it is anticipating some European intervention over the weekend. After all, what is going on in Europe? The U.S., thanks to Mr. Giethner, is encouraging Europe to adopt a TARP-like rescue package. Of course we did not really follow our TARP that was outlined in Congress. We just gave the banks the money and told them to use is as they saw fit versus buying toxic assets. Maybe that would have worked better. It is what we did back in the savings and loan crisis in the 1980's and early 1990's. Perhaps it would not have been a bad idea to do the same thing here because they worked pretty well. We recovered much more rapidly than we have now. Sorry, Mr. President, but your comments this week were totally off base, incorrect, and out-and-out misrepresentations. Of course we also had a President who had implemented recovery economic plans that actually work. Historically they show they work, and of course they worked again. We are in a different situation, but we still have a poor recovery, and gold is anticipating some stimulus to bounce is back to the upside yet again.


Oil. 84.09, -0.73. Oil fell on the session. A rough week. It was up later, but, as with gold, it appears to want to bounce off of the recent selloff. It has been a long, ugly way down. Where are those speculators when you need them? We have had a drop from $110 down to $84. That is a significant drop, and a relief bounce would be normal. The problem that oil will have is China, Europe, India, and Brazil. Weaker economies overseas and a lot of oil in the U.S. because private production -- in areas that were started years before this President took office -- are now producing nicely. We have a glut of oil. That is good for us as consumers and as a country because at least we do not have to push all of our money down the gas tank and burn it. We can use it for other things and maybe spur a bit of economic activity.

I will say, however, that gasoline prices are not falling nearly as rapidly as oil prices. Perhaps we need to have an investigation now. Oil prices are dropping. They wanted to have an investigation when they were rising, so why not have one when they are not dropping as fast as oil prices? After all, where I am located on the Gulf coast of Texas, we have a 14% drop in gasoline prices. But oil, as judged by WTI has dropped roughly 27%. Where is the investigation? Let us appoint a special prosecutor for this. It seems important enough. After all, the most serious internal intelligence leak in decades, as both sides of the aisle are calling it, apparently does not warrant a special prosecutor according to our President. When Valerie Plume was supposedly outed several years ago, no one was really put in danger and no big secrets were revealed, but we needed a special prosecutor on that. But we do not need one now. Not in the most serious breach in decades. We can just push it behind the doors and not worry about it. It is an election year after all, and we do not want to face those tough issues and questions. But I digress as usual.


TECHNICAL SUMMARY

Volume. NASDAQ -15%; NYSE -19%. This as stocks bounced to solid gains.


Breadth. NASDAQ 1.85:1; NYSE 2.3:1. Breadth was less than spectacular. Very anemic internals for this move. We can say it was just Friday. This was the best week of the year to the upside for stocks. It was the lowest volume of the year for stocks, and that is true even when taking out holiday weeks. Very low volume is accompanying the best move of the year. That is not encouraging. Even though the charts are somewhat suggestive of improvement, the internals are not very encouraging right now.


THE CHARTS

SP500. We had the selloff, the three week move, a bounce to the 20 day EMA, and then a selloff the prior week. We had a good bounce off of a solid support level. A nice reversal doji and a rally back up. Looked like things were reversing on Thursday with that tombstone doji, but stocks rebounded to positive after selling early. There was no volume, so you cannot put a lot of faith in this move. On the other hand, MACD is trying to put in a higher low even as stocks put in a lower low. That is a positive indication. Not really a higher low, just a bit lower, but it did not blow out this mid-May low and MACD. There were some positives there. Looking at the chart, you have support and a pretty serious selloff. It went down to next support and then bounced as you would anticipate. There was two-thirds of an inverted head and shoulders. Left shoulder, head, and now maybe it fades and forms a right shoulder. We will have to see what that means. SP500 held where it needed to, and it bounced and has a decent pattern.


DJ30. Very similar action from the Dow. It sold lower the prior week, held near a support level from late 2011, and it has bounced as well. Maybe a left shoulder, maybe a head, and a right shoulder to come? We will see.


NASDAQ. NASDAQ is more instructive. There was a gap lower on the big selloff two weeks back. The index sold and held above support, similar to what we saw on SP500, the next range of support. It showed a doji, bounced, and then gapped higher on Wednesday. A bit of an island reversal. Maybe we get an inverted head and shoulders as well. MACD did put in a higher low as NASDAQ put in a lower low. Historically this is not a good time of year to buy tech stocks, but they are acting as if they want to move up. There was a gap lower, a gap back up, and a little island reversal. It was not an extreme selloff, but it was a pretty good selloff. It bounced to the upside, and we may get an inverted head and shoulders at the bottom of a selloff. Those are bullish patterns. How many times have we seen those perform well for us?


SP600. SP600 showed similar action as well. The potential head holding in that range from late 2011. Kind of a left shoulder, maybe the head. We will see.


SOX. SOX is interesting. We had a pretty ugly selloff. It cut well into its mid- to late 2011 range. Indeed it is at the lower half of the bottoms from late November and December of that year. We had a gap down one day, we had a doji, it moved back up the next day and then a gap. Three days and a gap is an island reversal as well, and a potential inverted head and shoulders here.

We may have room for some upside just looking at the technical pattern. Do not get me wrong, this is not a strong pattern. We have a tremendous amount of overhead supply in these indices. SOX has a very rounded top. The SP600 has a head and shoulders. NASDAQ has a very rounded top as well. They held at logical support, the next major support to the downside. They have bounced; as we have seen, NASDAQ and SOX put in something of an island reversal look and rallied on the week. Weigh that against the internals: Very low volume. Summertime. Maybe that is the question. There has been low volume for a long time, although it did pick up over the past several months. Maybe we can just blame it on summertime. The dog days drying up the volume. When you do have dried-up volume, obviously stocks can be moved easier by just a few big players stepping in and pushing things around. Perhaps that is what we are seeing here.

Does that give you much confidence? Not really. This topping pattern is much large than this little bottoming attempt that is being put in over the past three weeks. Nonetheless, we have some upside out of it. We will see if it can push higher. We are not convinced, and thus we have downside plays in position. We still have more downside plays we are looking at, and we have upside plays that are performing. As long as they are performing, I think we will just let them do that.


LEADERSHIP

Technology. Some old names are trying to come back around. AAPL has been working on a base ever since peaking in early April. It has the makings of an inverted head and shoulders. If AAPL will be a leader to the upside, you would expect it to be ahead of the overall market. Indeed it is. It was up on Friday. It looks like it is past the midpoint of its new base. It could very well lead the market to the upside. It could. We will have to see it, but we are more than happy to let our positions run. There is interest in GOOG as well. It was up on the week although it had an ugly reversal on Thursday. It managed to come off the gap lower on Friday. In terms of support, it is holding at an old support level and is trying to make a bounce there. GOOG is also proving interesting.

It is not really the time of year for techs in general. But leaders show themselves, and right now you have to be playing leaders to the upside with great patterns and decent fundamentals. Downside, you want to play the stocks that are just in bad patterns. Even good stocks sell back and present downside opportunity. We are seeing movement in some of these just as we have all along. This is no mystery. There is not a lot of leadership, but there are very good patterns in good stocks that warrant buys if the move unfolds and gives us the buy indication.

Internet. There are some strong groups. I have noted that Internets are performing well over the last several weeks. EXPE made a good move on Friday, and we picked up some more positions there. WWWW has broken out, and it put in a test. A good entry point.

Retail. AMZN is performing well. It has a nice bounce and a very test to end the week. Even AEO is set up well to make a break higher. A lot of retail leaders have come under fire, but there are still areas in retail, specific stocks that you can move into on upside plays.

Healthcare/Drugs. The health care plans are moving upside. It looked like they might be in some trouble, but they have put in some moves and look decent. AET and HUM both had good moves on Friday. The drug stocks have also performed. There are moves to the upside.

Industrial. There are a lot of stocks that are weak as well. They are bouncing but still need more work such as the industrial equipment and CAT. There is even hope here, although they are ugly patterns. Perhaps they are due a bounce. If the market overall can build off of this week's move, maybe it will test back and form a right shoulder and put in an inverted head and shoulders at the bottom of the May selloff. That would be a bullish indication for a better bounce to come.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

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

A week of incredible statements from the White House.

Lowest spending administration in 60 years, 3 million 'green' jobs, more jobs created than the previous recession and recovery, and the economy is fine. Does the President really believe that? Really?


As President leaves the WH Briefing Room Friday it doesn't look as if even he believes what he just said.

"The economy is fine." You could see everyone's jaws drop when the President made that pronouncement during a long, rambling, and 40 minute late statement on the economy. He had to walk it back later in the day as aides rushed him onto television after the republicans and others ripped into him for that statement. It is "absolutely clear" that the US economy is "not doing fine" the President said later in the day as he pulled a 180 on his first statement, shifting to blame Congress for the lack of real recovery.

What is his argument? That if the Congress enacted his jobs plan many months ago we would have another million or two jobs now. Really? We spent over $800B in his first stimulus/jobs program and as we reported last week, those jobs cost anywhere from $554K to $4.1M EACH, depending upon what CBO numbers you use. And do you remember it went from created jobs to saved or created jobs? It was fiction, but of course the President wants to spend more money on more of the same because he can just make up numbers, just as he did this past week.

We have already discussed the 'lowest spending administration in 60 years' misrepresentation as well as the 3 million green jobs created. More accurately, those jobs were not created; they were just reclassified. The bike shop personnel, bus gas pumpers, bus drivers, janitors in 'green businesses, etc. were already there. They just changed the classification and voila, jobs are created. Green jobs at that.

The fine economy, however, as incredible as it was, was not the biggest misrepresentation of the day. The President, complete with straight face, stated that this recovery, the slowest since the Great Depression in every metric as we have detailed from many studies of this recovery versus past recoveries and indeed averages of the 10 past recoveries, had created more jobs than the prior recovery. They say you can make charts and numbers say anything you want them to. Apparently the President feels he can say anything he wants about any set of data.

We have gone from a President who could not construct and utter a complete sentence to an eloquent President who, particularly this last week, cannot be honest with the citizenry regarding the state of the economy.


Others coming to ECRI's recession conclusion as incomes negative.


HERE WE GO AGAIN???

A couple of weeks back I detailed ECRI's argument for recession and that the final factor was in place: income. Incomes adjusted for inflation have rolled over.

Friday The Consumer Metrics Institute and Trim-Tabs Charles Biderman issued a report that has the groups 'really worried' that the economy, adjusted for inflation, is already in a contraction. Three years into a recovery and we get 1.9% GDP? Trend GDP is over 3%. Oh yes, the economy is fine so no need to worry.

The duo notes per-capita income, i.e. money available for households to spend, is negative. A modestly rising GDP driven mostly by consumer spending (retail sales are the only leading economic group). That leaves CMI and Biderman asking 'where is the money coming from?' From one-time increases: refinancing mortgages added $50B; savings rates, after a jump early in the crisis, are diving, adding an estimated $200B annually; student loans to the tune of $100B; $50B from 'strategic defaults'. Those have kept the spending up, but as noted, they are one-hit wonders; once gone they don't come back. Incomes are negative and cannot support this level of spending. Falling oil prices help but not enough.

The conclusion: the US may ALREADY be in the first quarter of a recession. That would almost perfectly jibe with ECRI's call for a recession this summer, a call made last September. ECRI was roundly criticized and even ridiculed by some, but it stuck with its guns and we look as if we are heading that way IF not already there as CMI and Biderman fear.

Oh, and if this does happen or is happening, no way the administration can blame others. Well, no. I should say there is no credible way of blaming others. The administration is already laying the groundwork for its claims: 'if only Congress had passed our jobs plans we would be out of this buy now.' Make book on it.

One more thing: ECRI's annualized growth rate of the US leading index has turned negative again. Moreover, Germany's imports plunged 4.8%, the biggest drop in 2 years. Exports fell 1.7%. As with the US and the 'decoupling' cadre, it appears that Germany cannot withstand the decline of the rest of the EU either. Both the US and Germany saw imports and exports fall, and that does not speak well of foreign economies or domestic.



THE MARKET

SENTIMENT INDICATORS

VIX: 21.23; -0.49
VXN: 22.55; -1.26
VXO: 20.18; -0.78

Put/Call Ratio (CBOE): 0.96; -0.02


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: 34.0% versus 39.3% versus 38.3%. Plunging as expected though with this week's move they may bounce right back up. Below 35% on the move, however, and that puts it below the threshold and is a bullish indicator. Seems to be working as the market bounced. 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 24.5% versus 26.6%. Right back up but nowhere near a 35% high reading that would really start things upside, or at least set a better foundation. It is always the best signal of bulls and bears cross paths so to speak. Not bad given the bulls action, but not the best signal. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +27.4 points (+0.97%) to close at 2858.42
Volume: 1.375B (-15.28%)

Up Volume: 1.08B (+674.29M)
Down Volume: 279.24M (-910.76M)

A/D and Hi/Lo: Advancers led 1.85 to 1
Previous Session: Decliners led 1.5 to 1

New Highs: 36 (-6)
New Lows: 34 (+5)


SP500/NYSE

Stats: +10.67 points (+0.81%) to close at 1325.66
NYSE Volume: 623M (-18.77%)

Up Volume: 2.55B (+800M)
Down Volume: 839.4M (-1.401B)

A/D and Hi/Lo: Advancers led 2.36 to 1
Previous Session: Decliners led 1.2 to 1

New Highs: 76 (-5)
New Lows: 36 (+11)


DJ30

Stats: +93.24 points (+0.75%) to close at 12554.2
Volume DJ30: 111M shares Friday versus 131M shares Thursday.



MONDAY

There is a tremendous amount of data to come over the weekend and in the coming week. There is a lot of scheduled data. After the trade deficit on Friday, we have import and export prices on Tuesday. Retail sales on Wednesday. PPI is out and business inventories. Thursday brings continuing jobs claims and CPI. On Friday there is empire manufacturing and Michigan sentiment. Not to mention production and utilization. Important data again kicking up, and it is not just the U.S., of course. It never is anymore.

We have the Eurogroup meeting this weekend to discuss what to do about Greece, Spain, Italy, you name it. We will see if some accord can be reached there. As noted, after hours Spain said they are not comfortable with the requirements for the bank bailout. That news would have very much impacted the market if it has come out before the close, but it did not. We will see if the market can forget about it over the weekend. Futures were not pulverized after hours. They faded a bit, but they were recovering later in the session.

We also have China's economic data, and a lot of it is coming out over the weekend. That is something that people were already looking to this week as weaker numbers came out of that country. That will play a big role. We will see what comes out of the big-boy economies. Of course that will be the impact on U.S. manufacturers, producers, wholesalers and retailers. That is obviously important with respect to the stock market and future earnings.

There are still a lot of issues. There is still the fact that we could already be in a recession in the U.S. and just do not want to admit it. Of course there is all the election rhetoric. The administration will never admit that things are as bad as they are while the Republicans are probably overplaying the way things are. Although Romney has been pretty fair with it. He has not said the economy stinks. He has been accused of talking the economy down. How? How is he being accused of talking the economy down? He is just stating facts about how bad it is and how pathetic the recovery has been despite the President's lofty discussions of how they have spent less than any other administration in 60 years, et cetera. That rings rather hollow. But it is an election year, and that is the kind of nonsense and crapola you get.

We have to look at what we will do about the problems. The Fed is looking to the Congress and administration to get something done. It feels is cannot do anything more. On June 20th, we will see that the Fed will likely not do anything. It would have to change its talk, and maybe it will. Perhaps it will say something to the effect of "We do not want to do anything, it is up to Congress and the President to get something done. But if they do not do something, we will do what we can." That would be the change to indicate stimulus at the August meeting, or perhaps sooner if things deteriorate. Remember that we could already be in a recession or close to tripping into one.

In any event, the market held up well. It will try to continue the rebound. The patterns overall do not look great. We do not have a lot of leadership. We did not have a lot of volume on the move to the upside. All of those mitigate and lean against some continued move. Nonetheless, the indices are trying to set up and move higher. If we get leadership or at least upside bounces from some key stocks such as AAPL and GOOG, and maybe some manufacturing stocks continue their rebound off of their selloffs, we get another nice rally. The indices held at a key support level, and they have reversed. They showed more strength than anticipated, bouncing almost all the way back up to take out the prior week's losses. With that kind of move, we could see a pullback and a break higher.

What will we do about it? We play the good stocks as we have been doing. If we see good downside plays, do not shy away from those. As we have seen, those can be quite lucrative, and they made us some very good money over the past few weeks. We will keep looking for those as we did on Wednesday and Thursday to see if they set up and then if they give us the move. Friday's move was encouraging that the move did not sell off ahead of a weekend that holds a lot of question marks about China and the eurozone. And who knows what other geopolitical mess might arise.

It showed a bit of backbone. With that, it could very well try to bounce further. If so, we will play good quality patterns to the upside and get what we can from them. Use bounces to get rid of stocks that are not performing to the upside as well as we want. Focus on the ones that are doing well, and then just be ready when this runs out of gas. I think it will. I think there are too many troubles for the U.S. to avoid it. Then again, you take what the market gives.

Enjoy the weekend, and I will see you on Monday.


Support and resistance

NASDAQ: Closed at 2858.42

Resistance:
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
The 50 day EMA at 2905
2910 is the recent March 2012 low
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:
2841 is the February 2011 peak
2816 is the early April 2011 peak.
The 200 day SMA at 2767
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 1325.66

Resistance:
1332 is the early March 2011 peak
1340 is the early April 2011 peak
The 50 day EMA at 1341
1344 is the February 2011 peak
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:
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 1288
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 12,554.20
Resistance:
The 50 day EMA at 12,688
12,716 is the April 2012 closing low
12,754 is the July intraday peak
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
The 200 day SMA at 12,286
12,284 is the October 2011 peak
12,258 is the December 2011 peak
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

June 4 - Monday
Factory Orders, April (10:00): -0.6% actual versus 0.1% expected, -2.1% prior (revised from -1.9%)

June 5 - Tuesday
ISM Services, May (10:00): 53.7 actual versus 53.1 expected, 53.5 prior

June 6 - Wednesday
MBA Mortgage Index, 06/02 (7:00): 1.3% actual versus -1.3% prior
Productivity-Rev., Q1 (8:30): -0.9% actual versus -0.8% expected, -0.5% prior
Unit Labor Costs-Rev, Q1 (8:30): 1.3% actual versus 2.3% expected, 2.0% prior
Crude Inventories, 06/02 (10:30): -0.111M actual versus 2.213M prior

June 7 - Thursday
Initial Claims, 06/02 (8:30): 377K actual versus 375K expected, 389K prior (revised from 383K)
Continuing Claims, 05/26 (8:30): 3293K actual versus 3250K expected, 3259K prior (revised from 3242K)
Consumer Credit, April (15:00): $6.5B actual versus $12.7B expected, $12.4B prior (revised from $21.4B)

June 8 - Friday
Trade Balance, April (8:30): -$50.1B actual versus -$49.7B expected, -$52.6B prior (revised from -$51.8B)
Wholesale Inventories, April (10:00): 0.6% actual versus 0.5% expected, 0.3% prior


June 12 - Tuesday
Export Prices ex-ag., May (8:30): 0.2% prior
Import Prices ex-oil, May (8:30): 0.1% prior
Treasury Budget, May (14:00): -$125.0B expected, -$57.6B prior

June 13 - Wednesday
MBA Mortgage Index, 06/09 (7:00): 1.3% prior
Retail Sales, May (8:30): -0.2% expected, 0.1% prior
Retail Sales ex-auto, May (8:30): 0.0% expected, 0.1% prior
PPI, May (8:30): -0.7% expected, -0.2% prior
Core PPI, May (8:30): 0.2% expected, 0.2% prior
Business Inventories, April (10:00): 0.2% expected, 0.3% prior
Crude Inventories, 06/09 (10:30): -0.111M prior

June 14 - Thursday
Initial Claims, 06/09 (8:30): 375K expected, 377K prior
Continuing Claims, 06/02 (8:30): 3275K expected, 3293K prior
CPI, May (8:30): -0.2% expected, 0.0% prior
Core CPI, May (8:30): 0.1% expected, 0.2% prior
Current Account Balance, Q1 (8:30): -$130.9B expected, -$124.1B prior

June 15 - Friday
Empire Manufacturing, June (8:30): 13.5 expected, 17.1 prior
Net Long-Term TIC Fl, April (9:00): $36.2B prior
Industrial Production, May (9:15): 0.1% expected, 1.1% prior
Capacity Utilization, May (9:15): 79.1% expected, 79.2% prior
Michigan Sentiment, June (9:55): 77.0 expected, 79.3 prior

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

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

US Jobs Truly Pathetic

SUMMARY:

- A confluence of negative economic news gives stocks an old-fashioned tail kicking.
- 2% to 4% losses on the indices and a quick trip to the 200 day SMA.
- Gold surges, dollar fades versus Euro as US economic issues finally sink in.
- US jobs truly pathetic.
- China, US, European manufacturing point to a global slowdown.
- Incomes still not keeping up with inflation.
- 'No recession' say the pundits. They are wrong.
- Whose economic mess is this (other than ours of course)?
- After a 200 day SMA break, more selling but likely a pretty quick test.

Perfect storm of issues sweeps market lower.




The perfect storm was building with a confluence of negatives from around the globe. The U.S. jobs report was awful at 69K nonfarm payrolls produced. There are other details that I will discuss later that made it even more unsavory. The U.S. ISM came in well below expectations. China's PMI came in at 50.4, much lower than expected. The EU PMI came in at a three-year low at 45.1. Thank goodness for Greece and Italy who beat expectations while others missed such as Germany and France. Without them it would have been much worse. China is a known problem, Europe is a known disaster, and then we have the U.S. I will put it this way: It was not nearly as strong as some are saying. I will go into more detail later.

The news hit as you would expect. Futures fell off early in the morning on a lot of the data from the Far East. It flatlined overnight and then sold off hard on the U.S. data. The market sold down from the opening. There was a modest short covering rally attempt in the afternoon which did very little before tailing off into the close. The result was an old-fashioned tail kicking.

SP500, -2.46%; NASDAQ, -2.82%; Dow, -2.2%; SP600, -3.08%; SOX, -4.1%.

It was an ugly day no matter how you slice it. Looking at the charts, there was a significant drop that pushed the indices through their recent lows as well as the 200 day EMA. That has stocks approaching the next support already, and there will be a lot of potential support on the way down just as there is always resistance on the way up. The question is whether the news is bad enough to push stocks down significantly from here, or will they find support and base? As of Friday, no one was saying much good about the economy. There were a few out there saying there would be no recession and that this is the time to buy. It may turn out to be the time to buy, but we will see stocks telling us that is the case.

Not all stocks sold off. Not all of them collapsed. It was not a total bloodbath, but it was a significant drop for the market. It is an important drop because it takes out another consolidation attempt at relatively high levels of the pullback. It upset any ABCD pattern attempt. Now the market will have to realign itself and base out once more at a lower level from 2011.


OTHER MARKETS.

As you likely anticipated, the trends of late -- driven by the fears of late -- continued to hold. Not completely, however. There were some changes because of the dramatic change in the fortunes of the U.S. economic picture.

Dollar. 1.2430 versus 1.2368 euro. The dollar surged early. It has been running up against the euro, and you would anticipate a surge because the European data was bad. Even though the U.S. data was bad, it was not as bad as over there. The problem is that the dollar, after surging, closed lower. The reason? The Fed is back in play now. The Fed has been protesting that will not raise rates and that it is not time to do it. But all of a sudden, Friday's jobs report was somehow a game changer. Not all the other debilitating data, mind you, with respect to manufacturing, durable goods orders, etc. You saw it all. No, it has to do with jobs. A lagging indicator. They were going to wait until they saw the whites of their eyes, I guess, looking at the most lagging of indicators to make policy.

It is here. I talked about the ECRI last week, and it was looking at incomes and jobs. The jobs have arrived at that tipping point. Now the dollar is suddenly realizing that the Fed is back in play, and it might start printing some money. It might not be able to wait as the card of last resort, the last one to play in the event of trouble. So the dollar faded.


Bonds. 1.47% versus 1.57% 10 year U.S. Treasury. Even though the dollar may be worried about the Fed printing more money, bonds were not. Bonds still rocketed higher, and the 10 year hit another record. Huge moves on the week. There is money in flight to U.S. treasuries. This appears to be a secular move that, as Gary Kaminsky said, may likely push the 10 year yield down to 1%. It is getting close, and it has dropped a long way in a short period of time. The U.S. may have its troubles, but money is flying to bonds from overseas and here in the U.S.

As I said last night, this is not a sign of health as some were saying. It is a sign of major trouble, and it was forecasting more weak economic data in the U.S. Bonds are exploding to the upside. I do not see anything stopping it right now. There will be pullbacks, but the move was set up with this rally, pennant, and now an explosive gap. Not a good sign for the U.S. or the rest of the world economically.


Gold. 1,621.40, +57.20. Gold had a different story to tell. My, how fortunes have changed. It spent the last three weeks moving laterally after tapping at the upper trendline of its prior downward-pointing channel. It has formed a second smaller channel. It moved laterally, and it kept tapping lower and rebounding. We said something was up with gold, and it took off to the upside. Why? Money printing. If the Fed has to print, gold suddenly becomes much more valuable because the U.S. dollar becomes much less valuable. There is also that fear factor. The U.S. is heading into recession, and that scares investors around the world. They look to U.S. treasuries as safety because they still think the U.S. government will remain solvent for now. And they look to gold because it is a good store of value. They say you can buy a good suit with an ounce of gold now just as you could 200 years ago. Gold jumped up, and it is likely to continue higher as long as the bad news continues to gel.


Oil. 83.17, -3.36. Oil tanked. Who needs oil when you have a glut of it in the U.S. and there is no economic activity (or falling economic activity) around the world? Europe is a litany of negative manufacturing reports, contracting at a faster pace. China is not contracting yet, but it is on the cusp at 50.4. As far as it has dropped, it seems like it is already in recession.

We have no need for all this oil. We have no need for all these commodities. But interesting things are happening in commodities. Some are being bought simply as hedges and stores of value when paper assets suddenly look very risky. People were de-leveraging on Friday. That was almost a cathartic, cleansing move to the downside. It is not over. We may get a bounce because we broke the 200 day EMA and are right above other support. Often you get a rebound after that kind of action. It is not likely a rebound that will make any significant advance unless we get different stories that change the game. What would that be? You know it as well as I do: The Fed comes out with QE3 or QE4 or whatever name or number you want to pin on it. That would help pump up financial stocks. But as we know, it would not have that big of an impact this time. What happened with the other Quantitative Easing rounds? We had big moves in equities. We had a big move off of the March 2009 low. Then we had a big move off of the August 2010 low, but it was not as big as the initial move. Then we had the Operation Twist move. It made a nominal new high but could not make it stick. The move was much smaller than under QE2.

What does this mean? Each round of this money-printing stimulus has less of an impact. The marginal returns diminish. You have to have real growth at some point, and we do not have that in the United States. The recession supposedly ended in June of 2009. We have virtually no job creation and virtually no economic advance even though the recession supposedly ended. All of the stimulus came after the recession was officially declared over. It failed to do anything for us. Any advance today has been because of the Fed's massive liquidity and money printing.

We have some series troubles ahead of us. It is coming home now. It is not over. We are still in an uptrend. We may come down and tap that trend, and the Fed will announce "Quantitative Easing Whatever" and off we go again. Eventually we will not get the bounce; we will just get a rollover. We have to produce real economic growth, and we have had 3.5 years of these policies from the White House. The one thing they have proved is that Keynesian economics simply does not work. It only creates massive deficits, monetary transfers from the producers to the lotus eaters, and we suffer. Rome fell doing the same things we are doing now. Japan has entered into a multi-decade depression doing the things we are doing now. It is a grim scenario. Hopefully we will wake up before November.


TECHNICAL SUMMARY

Volume. NASDAQ -6.8%, 1.95B; NYSE +4.63%, 891M. The internals were not that impressive, but it is Friday and people were not around. That is often the case in the summer. You would have expected a lot more volume to the downside. It is almost a positive that volume did not explode higher with the indices down 2+%. With those kinds of moves, you would expect tremendous volume dumping stocks. That was not the case, so maybe there is a little silver lining there.


Breadth. NASDAQ -5:1; NYSE -6:1. Decliners were leading big. Big negatives on both of them. It may be getting a bit extreme.


New Lows. NASDAQ 1054; NYSE 209. New lows are not bad. You would expect to see 500-600 new lows to suggest that we are getting near a bottom. But that would only be an isolated stat. You have to put everything else in there as well: Call ratio, technical picture, volatility. The whole nine yards has to come together or it does not mean a lot.

The internals were not that bad. They were negative, as you might expect, but they were not horrid to the downside.


THE CHARTS

SP500. SP500 undercut the recent lows as well as the 200 day EMA. Now it is closing in on a relatively key support range around 1260. That is not too far for it to fall, and after it reaches that level, it will likely attempt a bounce to the upside. Stocks do not typically rally straight up. They have their pyramids, one on top of the other, and they sell in the same manner. There could be a big meltdown on the first move, and then a bounce, then a selloff, and then you see the little pyramids moving to the downside. After a bit more selling, we will likely get a little bounce even out of the old SP500. Relatively speaking, it is not in bad shape. It is still holding a significant portion of its rally.

Looking at the Fibonacci retracement chart, the SP500 has moved through the 50% retracement of this move off of the November 2011 low. It is still a relatively normal pullback. It is just virulent, and it is coming at a time when we have declining economic data. It is not one where we just have a normal pullback. This is pretty ugly. You could say it is leading some of the data, but really it has been following the data. That suggests that maybe it will not be a horrific selloff. Things are gloomy. I was very gloomy in the opening when discussing our economy and, indeed, the world economy. But the market itself is not showing that it is all Armageddon. But it never does, at least not right away. It has to fall into the selloff, and it is doing that right now.

We need to watch support levels. Can it hold the next support level or the one after that? How strong are the moves to the downside? Right now a 50% retracement is no big deal at all, and it has plenty of support below it. We will see if it can hold that support. We will not just think the world is over and we need to run for the hills. That is not smart. That is not the way you play the game in the stock market. You watch, you see where things hold, you watch oversold conditions, you watch leadership. Then when things get right, you make your move.


DJ30. DJ30 clearly undercut the 200 day EMA. No question of its weakness right here. It is falling toward the next support around 11900. That is one level, but it is always a range. We will look anywhere from 11735, and indeed a bit lower. We look for a hold and a bounce attempt after that. It, too, has not put in a deep test of its last move on Operation Twist, so it is still in decent shape.


NASDAQ. NASDAQ cracked its 200 day EMA as well, but it did not just blow through it. It is already approaching the next support, and it is not in bad shape. It is still coming back to test, yes, but it has very good support starting at around 2705 down to 2675. There is that range of support still below it, and it can hold and make a decent rally off of that.

Again, we cannot get overly negative and turn gloomy. You cannot get overly positive when things are moving higher either. You have to analyze what is going on. Everyone is negative right now. There was a selloff, but it was not the end of the world for the NASDAQ; it is still in its pattern. If it can hold at these next support levels or even the lows from 2011 before that eurozone selloff, it puts itself in very good shape to move higher again.


SP600. SP600 broke below the 200 day EMA. It, too, is struggling. They are all struggling. No surprise there. There is some support at 410 still to come, so it has a near support level to bump down to. Another five points lower, and then it can reverse and maybe try to bounce a bit to test. Very important, it broke through some important support levels. If it does hold or if it rolled over after another bounce, it has a considerable way to drop to roughly 390. That is a significant drop for the small caps.


SOX. The semiconductors were crushed. Down over 4%, gapping below the recent lows and selling off. Already down below the 200 day EMA, so that is not in play. The next support levels in play are a long way down near 345. It has another 8-10 points to the downside. Semiconductors do not look good. They were leading lower and, true to form, they are leading the market to the downside as the rest of the market decides to follow these commodities to the downside that are in everything we buy now.


LEADERSHIP

Leadership may not be exactly what you think.

Metals. Metals did not do too badly on the day. FCX was actually up. Looks like it is trying to bottom. MACD is coming in a bit higher as the stock tests a prior low. In steel, some of these look as if they are trying to bottom. AKS is very similar to FCX.

Retail. Retail was not doing great, but stocks such as AMZN held up just fine. Not all did as well. BWLD gapped below the 50 day EMA. That is not good. CMG is a stock that looked good on Thursday, but it gapped below the 50 day EMA as well. It is not over. It is still putting in a base, but it sure looked a lot better on Thursday. Of course a lot of stocks looked better before Friday.

Drugs. Medical stocks will probably perform better. IDIX came in nice. It is holding up very well. Then there were problems with AMGN. It imploded and broke to the downside. It is a situation where there may be a transition taking place. What should be a good sector is struggling a bit. A lot of people will turn to it in times of trouble, thought. We will look there for possibilities.

Internet. Internet continues to look decent. WWWW is holding up very well. EXPE is holding up nicely. It is holding at the 10 day EMA and not paying attention to what is going on.

There are cracks in some of the leadership groups, but we also see some of the leaders of the leadership sectors holdings up just fine. That is a positive, but overall things look to the downside. We may get a bounce soon. FCX looks like it wants to move higher. Maybe we will get a little commodities action moving to the upside because money works that way out of fear, looking for hard assets to put money into. The problem is, if there is deflation, they will not be safe harbors either. We will continue to look for stocks that are in good defensive sectors and can make us money to the upside. And we will look for stocks that look good no matter what. If they look good and are ready to bounce, we can put some money into it. Of course, you do not want to stack a lot of money into the upside on new plays because we have had such a pernicious turn to the downside. We have downside plays that are working for us.

In energy, LUFK has turned down and is really falling hard. AAP is heading to the downside. CTAS dropped hard as well. It will be that way. GRA is one of our downside stocks, and it is gapping lower just as we anticipated. BID is gapping down and selling as well.

There are stocks in trouble, and they are from many different sectors. That is no surprise looking at the downside breadth. We will continue to look for opportunity there, although gaps to the downside such as we saw on Friday do not present the best buying opportunities. That is why we move into them when we see them setting up. That will give us the gains. When you see the move, you play it. If everything looks right and it is in sync, it can make you money. Sometimes it will give you a head fake and you have to get out. We saw these setting up, and we started moving into them even when people were still talking about the stock market running higher. Look what is happening now.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

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




Jobs fall short, revisions to prior months eviscerate any claim of improvement as Labor Secretary talks of the need to export more goods. Hopelessly confused in the White House.


More people looked for work but fewer found it in May, and as it turns out, in April and March as well.

Workforce: +642,000, the biggest increase since 11/07. Looked for work bout could not find it.
Participation rate: 63.8% vs 63.6% April.

Nonfarm Payrolls, May (8:30): 69K actual versus 150K expected, 77K prior (revised from 115K)
Nonfarm Private Payrolls, May (8:30): 82K actual versus 168K expected, 87K prior (revised from 130K)
Unemployment Rate, May (8:30): 8.2% actual versus 8.1% expected, 8.1% prior
Hourly Earnings, May (8:30): 0.1% actual versus 0.2% expected, 0.1% prior (revised from 0.0%)
Average Workweek, May (8:30): 34.4 actual versus 34.5 expected, 34.5 prior

April: -38K jobs from original report.
March: -11K jobs from original report.

Construction -12K; Leisure -9K
Gains: Healthcare +33K; Manufacturing +12K

Huge yet ignored stat: Average workweek FELL.


Personal Income trending lower in April and we know now it was lower in May.




ISM still positive but sliding fast, missing expectations.
ISM Index, May (10:00): 53.5 actual versus 54.0 expected, 54.8 prior



















Back to the Land of the Lotus Eaters: Cramer, JPM Asset Management: There won't be a recession. According to ECRI and the Chicago PMI, we could already be there.


Another trip to the Island of the Lotus Eaters: denial of our economic situation continues.





Prepare for another 'I was wrong' moment on the Daily Show, Cramer.

Cramer has talked up how our economy is 'strong' for several months now. It is not strong. The numbers show this is the worst recovery since the Great Depression. I detailed many of the lowlights last night. Maybe we are strong compared to pitiful Europe, but we are not strong by any comparison to US standards and frankly even European standards (the old standards pre-EU).

As Archie Bunker once told Edith on 'All in the Family,' with his continued talk of the strength of the US, Cramer has painted himself into a corner and thrown away the key.



Why? Because last week I went through the ECRI recession call and reiteration in detail. The missing link, the last holdout, was jobs. Incomes have already rolled over in real terms (see chart), and as jobs follow (a lagging indicator of course) that is only going to get worse.



Now all of the pieces are in place and ECRI says we may already be in recession given the magnitude of the decline in such a short time period. This dovetails with the conclusions the Chicago PMI author's stated following its release this week and the rapid decline it chronicled. They concluded that the US was heading into recession given the key factors watched were down three consecutive months.

You can keep a stiff upper lip and deny the numbers. It certainly looked as if the US was far from recession fears, but ECRI made the call and as the months passed and we moved toward the target dates, the data has consistently eroded despite the Administration trying everything it could to mask the true numbers. As the evidence continues to mount and the data continues to deteriorate it is clearer that resistance to the notion a recession in the US is coming is futile. It may already be here.


This economic disaster didn't start in this Administration, but this Administration has utterly failed to resolve it.


Learning the hard way that there is a reason the communist regimes fall and the socialist ones barely produce results.

Stimulus signed into law 2/17/09. Recession ended 6/09.

Sure doesn't feel as if the recession is over.

Recovery well below the average of the past 10 recoveries.

Even with the stimulus we have 15 million unemployed and no quarters of 4% or better growth.

Trends have turned back down and ECRI's recession call is about or is reality.

You own everything since June 2009 Mr. President.





THE MARKET

SENTIMENT INDICATORS

VIX: 26.66; +2.6
VXN: 28.63; +2.74
VXO: 26.21; +3.15

Put/Call Ratio (CBOE): 1.37; +0.29

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: 39.3% versus 38.3%. Back up to the level three weeks back, seemingly an absurd reading given the market, but it has been somewhat skittish of late. Likely just a hiatus before heading back lower and 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: 24.5% versus 26.6%. Rather odd action in line with the bulls as bears back off from the high on this move. Still higher than the 22.3% three weeks back. Pausing, but as with the bulls, likely to run higher after this week and its action. 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: -79.86 points (-2.82%) to close at 2747.48
Volume: 1.957B (-6.81%)

Up Volume: 78.62M (-748.45M)
Down Volume: 1.88B (+610M)

A/D and Hi/Lo: Decliners led 5.07 to 1
Previous Session: Decliners led 1.13 to 1

New Highs: 12 (-18)
New Lows: 154 (+52)


SP500/NYSE

Stats: -32.29 points (-2.46%) to close at 1278.04
NYSE Volume: 891.448M (+4.63%)

Up Volume: 346.11M (-1.694B)
Down Volume: 4.25B (+1.85B)

A/D and Hi/Lo: Decliners led 5.94 to 1
Previous Session: Decliners led 1.05 to 1

New Highs: 52 (-10)
New Lows: 209 (+30)


DJ30

Stats: -274.88 points (-2.22%) to close at 12118.57
Volume DJ30: 163M shares Friday versus 205M shares Thursday.


MONDAY

Next week the economic data does not slow down much. We have factory orders on Monday, ISM service on Tuesday, and on Wednesday we have productivity. Of course our president thinks that kills jobs, so we have to be careful of that. Productivity has been going down, hasn't it? It was -0.5 prior, and jobs have not been blasting off to the upside. Gee whiz, could they possibly be wrong? The history of the economy shows that they are. Thursday brings initial claims and consumer credit. That will be interesting as well. Then on Friday we have wholesale inventories. That will give us some more ideas as to what the U.S. manufacturing sector is doing. Trade balance will also be interesting. We will see what happens there.

We have more data, but we had the big daddy week of data this week. We see the results. It was an ugly May, and now it has been an ugly start to June. No new money came in, but maybe it will next week. We anticipate that there will be some more downside. There is this next support level for SP500, and it was dropping quickly toward that level on Friday. A little bit further to the downside, another 30 points or so, and that lets the VIX bounce a bit higher to those old lows. Then you get a rebound move.

So we get a rebound. Here is the point as to why this is even more significant than the prior attempts: These are very important levels because they are the lows from 2011 before the eurozone selloff. These where the lows after QE2 started to run its course and everyone know it would be pulled. That makes them extremely important because, if the market breaks through them, it falls well back down into the move from 2010. That makes the Fed's job that much harder, trying to rescue the market. I discussed this last night. Does it move now and try to fix it before it gets worse? Or does it want to act as the ace-in-the-hole, trying to come to the rescue as the white knight for the market and the world economy if things start to tank yet again? That is the dilemma the Fed is in, and it will probably try to keep its powder dry. It cannot go on in on this kind of news right now; it would be seen as premature.

We will probably get more of a selloff. We will get the stock market falling down to the next support. From there it will bounce, and then it likely falls again. There is no Quantitative Easing coming right now. The Fed may end up surprising everyone, but it has been making noise as if it would not do that. That will be the game changer, if the Fed decides to step in.

China is out there as well. If it announces big stimulus, that will also help the market. That will bounce things, but will it take them back up? I do not think so. If the Fed steps in, that would be a game changer, and financial assets will rally because the Fed carries a pretty big float of money. When it throws it in, we will get movement. First it will be a psychological move that will bounce it higher. It will continue. It will not be as strong as these other moves have been in the past. That will be the problem. The Fed steps in, we get a nice rally, and we take advantage of it. We take our gains in our downside if that happens, and then we throw into the upside with good names in good position to move. We make what we can, and we watch for when things start to roll. It may be another several-month run. I do not think it would be, but whatever it is, we will take it. We always take what the market gives.

Until the Fed acts, it is downside biases with a bounce off of support coming after a little bit more downside. We have to continue to play those moves now. When the Fed comes out, it is a game changer and we go upside.

I know it was a tough week out there. Just put it all in perspective, watch what is happening, act accordingly, and you will come out fine.

Have a great weekend!


Support and Resistance

NASDAQ: Closed at 2747.48

Resistance:
2754 is the October 2011 high
The 200 day SMA at 2757
2816 is the early April 2011 peak.
The 10 day EMA at 2832
2841 is the February 2011 peak
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 2924
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:
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 1278.04

Resistance:
The 200 day SMA at 1285
1293 is the October 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
The 10 day EMA at 1313
1318.51 is the May 2011 low
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 1349
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:
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 12,118.57
Resistance:
The 200 day SMA at 12,254
12,258 is the December 2011 peak
12,284 is the October 2011 peak
12,391 is the February 2011 peak
The 10 day EMA at 12,441
12,754 is the July intraday peak
The 50 day EMA at 12,764
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:
12,110 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 29 - Tuesday
Case-Shiller 20-city Price Index, March (9:00): -2.6% actual versus -2.8% expected, -3.5% prior
Consumer Confidence, May (10:00): 64.9 actual versus 69.4 expected, 68.7 prior (revised from 69.2)

May 30 - Wednesday
MBA Mortgage Index, 05/26 (7:00): -1.3% actual versus 3.8% prior
Pending Home Sales, April (10:00): -5.5% actual versus 0.6% expected, 3.8% prior (revised from 4.1%)

May 31 - Thursday
Challenger Job Cuts, May (7:30): 66.7% actual versus 11.2% prior
ADP Employment Chang, May (8:15): 133K actual versus 157K expected, 113K prior (revised from 119K)
Initial Claims, 05/26 (8:30): 383K actual versus 368K expected, 373K prior (revised from 370K)
Continuing Claims, 05/19 (8:30): 3242K actual versus 3250K expected, 3278K prior (revised from 3260K)
GDP - Second Estimate, Q1 (8:30): 1.9% actual versus 2.0% expected, 2.2% prior
GDP Deflator - Second Estimate, Q1 (8:30): 1.7% actual versus 1.5% expected, 1.5% prior
Chicago PMI, May (9:45): 52.7 actual versus 57.0 expected, 56.2 prior
Crude Inventories, 05/26 (11:00): 2.213M actual versus 0.883M prior

June 1 - Friday
Nonfarm Payrolls, May (8:30): 69K actual versus 150K expected, 77K prior (revised from 115K)
Nonfarm Private Payrolls, May (8:30): 82K actual versus 168K expected, 87K prior (revised from 130K)
Unemployment Rate, May (8:30): 8.2% actual versus 8.1% expected, 8.1% prior
Hourly Earnings, May (8:30): 0.1% actual versus 0.2% expected, 0.1% prior (revised from 0.0%)
Average Workweek, May (8:30): 34.4 actual versus 34.5 expected, 34.5 prior
Personal Income, April (8:30): 0.2% actual versus 0.3% expected, 0.4% prior
Personal Spending, April (8:30): 0.3% actual versus 0.3% expected, 0.2% prior (revised from 0.3%)
PCE Prices - Core, April (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
ISM Index, May (10:00): 53.5 actual versus 54.0 expected, 54.8 prior
Construction Spending, April (10:00): 0.3% actual versus 0.5% expected, 0.3% prior (revised from 0.1%)
Auto Sales, May (14:00): 5.0M prior
Truck Sales, May (14:00): 6.0M prior


June 4 - Monday
Factory Orders, April (10:00): 0.1% expected, -1.9% prior (revised from -1.5%)

June 5 - Tuesday
ISM Services, May (10:00): 53.0 expected, 53.5 prior

June 6 - Wednesday
MBA Mortgage Index, 06/02 (7:00): -1.3% prior
Productivity-Rev., Q1 (8:30): 0.7% expected, -0.5% prior
Unit Labor Costs-Rev., Q1 (8:30): 2.3% expected, -2.0% prior
Crude Inventories, 06/02 (10:30): 2.213M prior

June 7 - Thursday
Initial Claims, 06/02 (8:30): 375K expected, 383K prior
Continuing Claims, 05/26 (8:30): 3250K expected, 3242K prior
Consumer Credit, April (15:00): $12.7B expected, $21.4B prior

June 8 - Friday
Trade Balance, April (8:30): -$49.9B expected, -$51.8B prior
Wholesale Inventories, April (10:00): 0.5% expected, 0.3% prior

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

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

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