Sunday, April 07, 2013

Jobs Report Leads to Harsh Selling


- Jobs report leads to harsh selling, but stocks spend most of the session mounting a recovery.
- Weak jobs trash a lot of good economic will.
- Japan stimulus gone wild, US data send financial markets reeling.
- Earnings season eve and things are disturbing.
- SOX still divergent as growth indices test key support: the next bounce and how it reacts tells the tale.

It keeps coming back.

Remember the kid in your neighborhood the gang didn't want to play with? You always tried to ditch him, went to great lengths to devise schemes to avoid him, but he always showed up, returning from wherever you left him.

To those waiting for a serious correction in this market, it must feel the same way. A lot has been thrown at it, but it is holding up, at least in the large cap arena.

Friday was more of the same. A confluence of bad news: Thursday's jobless claims set the tone. North Korea moving missiles and the US responding with a massive movement of military equipment. Japan's financial markets swinging wildly back and forth in response to massive new monetary stimulus suggest that the country may have finally gone too far, moving past the tipping point. FFIV, an important tech stock, took a blowtorch to its guidance just ahead of earnings season. March jobs limped in at 88K. Despite upward revisions to the prior two months, the key points within the report sadly delineate the serious problems that remain in the US economy in is fifth year of recovery.

N. Korean negotiating Japan: What the . . . ? US jobs show real problems

Even with some really bad news that gapped stocks sharply lower on the open, virtually at the open stocks started to recover. You could call it short covering but that didn't really occur until late in the day when it was clear the market was not going to roll back over. Then it became a game on the financial stations as to whether the indices would make it to positive and complete the reversal.

They didn't, but nonetheless it was not a bad finish.

SP500 -6.70, -0.43%
NASD -21.12, -0.65%
DJ30 -40.86, -0.28%
SP400 -0.14%
RUTX -0.26%
SOX -0.52%
DJ20 +0.46%

The interesting thing, well one of the interesting things, is that despite the divergence between large caps and the small and growth stocks, the only index that did not hold or recover to a relatively key support level was SOX. Of course SP500 and DJ30, the indices most immune to the recent selling, easily held support. DJ20 transports blew out the 50 day EMA but then raced back up to show a nice shakeout. The remaining indices, while they did bounce and hold support, didn't necessarily save themselves by their recovery. Gave themselves a chance, but didn't ensure things were whistling back to the upside.


With the US jobs report and the Japanese stimulus gone wild, yes other financial markets were impacted.

Dollar: 1.2999 versus 1.2943 euro. Despite issues in Japan and the continuing European drama, the US dollar was lower Friday on the weak jobs report. It broke the 20 day EMA, closing or otherwise, for the first time since early February. Some confidence in a US recovery waning.

Bonds surging: 1.71% versus 1.76% versus 1.81% 10 year Treasury. 10 basis points in 2 sessions, but that is nothing compared to what Japan is experiencing with its 4+% (400+ BP) swings in one session. Still, the lack of confidence in the world and the US economy was on display Wednesday to Friday with bonds exploding higher. EVEN WITH MASSIVE INTERVENTION BY CENTRAL BANKS, the bond market jumped, some would say out of control. Indeed because of intervention keeping rates lower we are seeing these almost unbelievable breaks upside.

Oil down hard on the week: 92.70, -0.56. After pulling a Sir Robin from Monty Python just shy of the January and February peaks, oil showed it is trying to find support at 92 to 90. Down but bouncing off the low for a second session. Important bounce, but again I point out that the recent rise pretty much matched the 78% retracement of the September to December selloff, and double tops at that level tend to retrace all the way, i.e., back down near 85.

Gold: 1576.00, +23.60. Sold hard early in the week but held support Thursday and reversed. Friday with all of the turmoil it was of course running. It has tested and now it shows just how much upside there is.


Jobs report sets back views of economic recovery.

Doesn't really matter that January and February were revised higher another 61K. It doesn't matter that unemployment fell to 7.6% (indeed the reasons for the fall are the problem). With the US economy supposedly in the fifth year of official recovery from the Great Recession, the March jobs report reveals major systemic issues with the jobs market and the economy, the kind of problems that develop when policies induce behavior that would otherwise not occur in rational markets.

Nonfarm Payrolls, March (8:30): 88K actual versus 192K expected, 268K prior (revised from 236K)

Nonfarm Private Payrolls, March (8:30): 95K actual versus 210K expected, 254K prior (revised from 246K)

Unemployment Rate, March (8:30): 7.6% actual versus 7.7% expected, 7.7% prior

Hourly Earnings, March (8:30): 0.0% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)

Average Workweek, March (8:30): 34.6 actual versus 34.5 expected, 34.5 prior

People leaving the workforce in March in the Fifth year of economic recovery: 677,000

496,000 people leaving the workforce net.

Total number of work age residents not in the workforce: 90M.
US population: 313M
Workforce participation rate: 63.3%, lowest since May 1979

U6 Unemployment (includes people working at less than full employment and want to work full time): 13.8% down from 14.3%!!!

What this shows:

1. People who have worked part-time in hope of finding full time jobs are giving up and deciding they can collect unemployment for 99 weeks, go on disability and collect other government benefits and HAVE AS MUCH DISPOSABLE INCOME AS WHEN THEY WORKED PART TIME.

2. Real unemployment rate is over 11%

3. Jobs quality and disparity plunge and widen

Since January 2009:
+4.02 million jobs for the 55+ age group
-2.8M jobs in all other age demographics.

Ages 22 to 54: -2.2M jobs during this administration.

Let them use spoons!

You can create millions of jobs but if your policies ordain them to be low paying part-time jobs, just how healthy is the economy when measured merely by jobs? It is the old story about Milton Friedman and a communist government project he was shown. When Friedman asked why there were using shovels versus earth moving machines in digging a canal, he was told it was so they could provide more jobs. Milton quipped, why not have them use spoons?

Raising the minimum wage? Those jobs are supposed to be stepping stones to better jobs. Now they are end jobs. No wonder this administration wants the minimum wage raised as its polices turn low paying part-time temporary jobs into permanent jobs.

More people working at worse jobs does not equate to economic health.

Ridiculousness: Japan may have hit the monetary policy tipping point.

In a move that is being described by some as the Bank of Japan president driving around throwing yen out the back of a Toyota, Japan embarked on the biggest monetary stimulus in the world. As shown Thursday, its move dwarfs the US $85B monthly injections.

Of course all is well as a result, right? My word, look at the Japanese bond market. At first it rallied a bit. Then it went berserk, trading a 410BP move in one session. Yen is diving, its bond yields literally exploding. Japan may have finally shown the rest of the world where the tipping point is.



Stats: +21.12 points (+0.65%) to close at 3203.86
Volume: 1.59B (+9.81%)

Up Volume: 607.67M (-382.35M)
Down Volume: 943.81M (+473.79M)

A/D and Hi/Lo: Decliners led 1.52 to 1
Previous Session: Advancers led 1.88 to 1

New Highs: 47 (+8)
New Lows: 43 (+11)

Stats: +6.7 points (+0.43%) to close at 1553.28
NYSE Volume: 646M (+11%)

A/D and Hi/Lo: Decliners led 1.14 to 1
Previous Session: Advancers led 1.64 to 1

New Highs: 165 (-13)
New Lows: 67 (-10)

Stats: +40.86 points (+0.28%) to close at 14565.25

BREADTH: With the wild moves in the market you could not take much from the -1.5:1 on NASDAQ and -1.1:1 NYSE.

VOLUME: Volume up about 10% on each exchange as stocks recovered. Of course you cannot take much from that recovery volume rise because it was still lower than on Wednesday when the indices fell hard. More distribution on the week than accumulation. Not a lot of selling days, however, so not necessarily suggesting a lot more selling.


SP500. All the way to the November up trendline on the low, turned, and then recovered back to the 50 day EMA. Tried the other side of the tracks, didn't like it. A bit top-heavy, but my goodness, considering all the news this was not bad action and showed buyers still ready to enter.

NASDAQ. Through Thursday NASDAQ sold to the November up trendline that marks the bottom of the channel. Friday NASDAQ gapped below that level but held the 2011 trendline. Reversed to hold the 50 day EMA on the close. A deeper recovery to deeper support, but note that if Friday was the low it still put in a higher low. Not a complete shakeout and recovery. NASDAQ has a rounded top trying to form, MACD is putting in lower highs, big names such as FFIV are struggling. AAPL, on the other hand, wants to bounce. It is trying to hold.

DJ30. Reached to the 20 day EMA, tested, rebounded. Unscathed.

SP400. On the week the midcaps broke the November trendline with some flair. Friday tested the 50 day EMA on the low and rebounded to a modest loss. Good reversal, and can put in its own higher low as well, but not an all clear signal. It is sluggish, trying to put in a rounded top similar to NASDAQ and that needs to be watched over the next bounce attempt off this doji.

Russell 2000 small caps. Harsh week, selling hard Monday to Wednesday, breaking the November lower channel line along the way. Wednesday to Friday it sold to the 50 day EMA, danced around it, managed to rebound Friday to keep it safe. Same story as NASDAQ and S400: put in a higher high on the past bounce but MACD flagged. It broke the trendline and is now at next important support. This does not mean it has to fall. It has dropped some already. The NEXT bounce off of this test of key support tells the tale.

SOX. As with RUTX, a tough week. Down hard to start, breaking the November trendline and then the 50 day EMA. It did NOT recover the 50 day EMA as did the other growth indices. SOX is ahead of the rest of the indices in terms of pattern development. It has a head and shoulders in place. It broke the neckline last week and is in the process of testing that break. Important for the rest of the market how that break plays out.

SUMMARY: Breaks lower all around, but the same strengths (or weaknesses) in the end. SP500, DJ30 held up fine. NASDAQ, SP400, RUTX broke trends but managed to hold an important support. These three are forming rounded tops and the next bounce off the 50 day EMA test will tell their strength in terms of further selling, i.e. if they form a right shoulder and roll over from it. SOX is already there, and as noted Thursday, it led the move lower in the summer and then early fall 2012. That DOES NOT ALWAYS happen as the earlier action in 2012 showed; everything fell together then. Right now, however, it IS diverging as it did in summer and particularly the fall of 2012. Thus after a bounce by NASDAQ, SP400 and RUTX, they could be dragged lower by SOX. That makes this next bounce key.


Big Names: AAPL looks ready to bounce back up off of support. GOOG gapped below the 50 day EMA Friday. It needs an immediate recovery. AMZN is ready to bounce back up in its range similar to AAPL. CLX is at the 20 day EMA, slowing and ready to bounce. Indeed, it is not on the report, but if you are interested, the July 85 strike calls with a $3 move to 90 after clearing the 10 day EMA on a bounce lands a 59% gain.

Financial. Not ready to call a reversal. JPM, BAC, C, etc. all gapped lower then reversed with engulfing patterns (lower low, higher close than prior session). Not giving that much contribution to the upside.

Metals. Starting the bounce upside after the selling. FCX showed great volume as it started upside. Not much room to play, however. STLD looks right as well.

Building materials. TREX is trying to hold the 50 day EMA and bounce, but the pattern is a bit treacherous. LPX surged Friday after a 50 day EMA breach, but it too is somewhat treacherous; can pull it off but has to show it. CX gapped to the 50 day EMA as if it was wearing concrete galoshes, but then blasted off to a new rally high. Go figure. This as homebuilders struggling big: TOL, PHM.

Transports. Sold but then found buyers. JBHT, ODFL in trucking. KSU and CSX in rails. Not that powerful, but another test in the trend.

Retail. Some massive moves, e.g. PNRA. Other solid participants are the same: DECK, DLTR, WSM, TJX.

Techs. Clouds grew a bit thicker after FFIV. ADTN was hit. RAX managed to rebound some as did AKAM, but they are still pitiful patterns. Others took hard hits, e.g. SWI and how it bounces tells some tech tales.

Drugs/healthcare. Continues as a hot area and we are playing it and ready to play more with SNSS, CLDX, ACAD.



VIX: 13.92; +0.03
VXN: 15.52; +0.26
VXO: 13.87; +0.33

Put/Call Ratio (CBOE): 1; -0.09

Bulls versus Bears

Bulls jumped but bears were not convinced. This past week shows the bears were a bit more prescient, at least near term. Bulls are still at pretty high levels but not necessarily toppy. Bears are a bit light; that should change after this past week.

Bulls: 52.0% versus 49.5% versus 47.4% versus 50.00% versus 44.2% versus 46.3% versus 48.4% versus 52.6% versus 54.7% versus 54.3% versus 53.2% versus 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6. Over the September 2012 level. Last time the market hit that level SP500 corrected 9% over the next two months. Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. 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: 19.4% versus 19.6% versus 18.6% versus 18.8% versus 21.1% versus 21.1% versus 22.1% versus 21.1% versus 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7%. Summary: 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.


Not only economic but geopolitical issues are in the spotlight. The US was thought to be cruising, if not in a strong recovery, at least in a recovery that was improving. That jobs report pokes holes in that theory, revealing systemic problems.

What does this mean for the market? The Fed is going nowhere for now, and likely not even in the summer as some Fed officials were saying last week. The FOMC minutes this Wednesday could cause more issues if those thoughts were uttered at the meeting. After all the turmoil maybe those ideas are changing, but it won't change what was said a month ago. Thus that presents some market risk.

Still, most will feel the turmoil means the Fed remains in place. So, liquidity is there as the backstop. That said, how NASDAQ, SP400, RUTX and SOX fare on their next bounce is very important. As noted, SOX is diverging downside from SP500 and DJ30. When it did that in 2012, the overall market followed. Again, how this next bounce fares is key. A rollover of course means more selling, and it also means SP500 and DJ30, despite their strength, are at risk.

At this juncture with the growth indices at support we are willing to play a bounce off of some pretty harsh selling last week. Looking at it as mostly a bounce for now given the patterns and the proximity of earnings season. The market is set to bounce for a week or so, then the story is told as to the next move. Thus we have the mindset of playing a bounce move and then acknowledge we might have to sell out more upside and play more downside.

Doesn't mean it will happen, but we need to be ready given the action in the growth indices and the divergence in SOX. There are still good patterns in sectors such as drugs and healthcare, and those are definitely worth playing because money continues to move to them. There are also bounce plays such as AAPL, NKE, TRIP, etc. that we are looking at for some near term gains. If they continue from there, great. If not, we bank some solid gain on the initial move, and then get out of things deteriorate.

Just being ready, just taking what the market gives.

Support and resistance

NASDAQ: Closed at 3203.86

3207 is the November 2012 up trendline
3227 is the April 2000 intraday low
3321 from April 2000
3339 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

3197 is the September 2012 post-bear market high
The 50 day EMA at 3194
3171 is the October intraday high
The 2011 up trendline at 3157
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
The 200 day SMA at 3062
3042 from 5/2000 low and several other price points
3024 is the gap point from early May
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
2847 is the mid-May 2012 low
2838 from the July 2012 lows

S&P 500: Closed at 1553.28

1556 from July 2007
1576 from October 2007, all-time high
1609 is the upper trendline in the channel

The 20 day EMA at 1553
1539 from June 2007
The November up trendline at 1539
1531 is the recent high
The 50 day EMA at 1529
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
The 200 day SMA at 1441
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak

Dow: Closed at 14,565.25

14,900 is the upper channel line for the trend off the November low.
9.0% above its 200 day SMA, still leaving DJ30 room to run before it gets too top heavy on this run and has to test.

The 20 day EMA at 14,473
14,198 from the October 2007 high
The 50 day EMA at 14,201
14,149 is the February 2013 high
The November up trendline at 14,052
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
13,784 is the late February 2013 closing low
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
13,413 from the late September 2012 low
The 200 day SMA at 13,401
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
12,716 is the April 2012 closing low
12,524 is a range of support from early 2012 and summertime 2012

Economic Calendar

April 5 - Friday
Nonfarm Payrolls, March (8:30): 88K actual versus 192K expected, 268K prior (revised from 236K)
Nonfarm Private Payrolls, March (8:30): 95K actual versus 210K expected, 254K prior (revised from 246K)
Unemployment Rate, March (8:30): 7.6% actual versus 7.7% expected, 7.7% prior
Hourly Earnings, March (8:30): 0.0% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)
Average Workweek, March (8:30): 34.6 actual versus 34.5 expected, 34.5 prior
Trade Balance, February (8:30): -$43.0B actual versus -$44.7B expected, -$44.5B prior (revised from -$44.4B)
Consumer Credit, February (15:00): $18.1B actual versus $14.0B expected, $12.7B prior (revised from $16.2B)

April 9 - Tuesday
Wholesale Inventories, February (10:00): 0.5% expected, 1.2% prior

April 10 - Wednesday
MBA Mortgage Index, 04/06 (7:00): -4.0% prior
Crude Inventories, 04/06 (10:30): 2.707M prior
Treasury Budget, March (14:00): -$107.0B expected, -$198.2B prior
FOMC Minutes, 3/20 (14:00)

April 11 - Thursday
Initial Claims, 04/06 (8:30): 365K expected, 385K prior
Continuing Claims, 03/30 (8:30): 3058K expected, 3063K prior
Export Prices ex-ag., March (8:30): 0.6% prior
Import Prices ex-oil, March (8:30): 0.0% prior
Natural Gas Inventories, 04/06 (10:30): -94 bcf prior

April 12 - Friday
Retail Sales, March (8:30): 0.0% expected, 1.1% prior
Retail Sales ex-auto, March (8:30): 0.0% expected, 1.0% prior
PPI, March (8:30): -0.1% expected, 0.7% prior
Core PPI, March (8:30): 0.1% expected, 0.2% prior
Michigan Sentiment, April Preliminary (9:55): 78.0 expected, 78.6 prior
Business Inventories, February (10:00): 0.4% expected, 1.0% prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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