Stocks Enjoy Strong Week

MARKET SUMMARY

- Jobs report two Fridays back is long gone, stocks enjoy strong week despite weaker economic data.
- Gold and silver pounded even as data weakens, geopolitical tensions rise. It seems incredible, but remember LIBOR?
- March Retail Sales vastly disappointing, but furnishings are up so all must be well.
- Michigan Sentiment follows Consumer Confidence lower.
- Business inventories grow much less than expected.
- Earnings following last quarter's pattern, but does it matter with free money for financial markets?
- 401K borrowing the latest sign of systemic US economic problems under the surface.
- Don't want to sound cocky, but despite all of the bad data, this time around SOX doesn't seem to hold sway over SP500, DJ-30.

When economic reports mean nothing to the stock market.

Just two Fridays back the futures imploded on a weak jobs report. Not just in numbers (88K), but in the type of jobs being created (lowest pay scale as medium tier jobs lost are replaced with low-tier jobs) or not created for that matter, driving able bodied people out of the workforce.

This Friday was another poor economic data day. Retail sales stumbled in at -0.4% when they were expected to hold steady. Retail sales trending lower since 2011.


Michigan Sentiment face-planted (72.3 versus 78.6 prior), following Consumer Confidence back toward recession levels .



Business inventories rose just 0.1% (0.4% expected, 0.9% prior), suggesting those touting a 3+% GDP for Q1 will likely be disappointed. Earnings continued last quarter's trend of missing on the top line, i.e. sales. JPM and WFC, despite free money, missed on the top line. JPM's deposits are far in excess of loans; backward. When you get money for free why risk it on loans that could fail to perform? Get a guaranteed return; it beats working. Remember that later when we talk about people and jobs.



Friday's data was simply a continuation of what the past couple of months have shown, i.e. a return to the spring slide into a summer slump. 13 of 14 misses on economic data points not counting the Friday misses. The data is not looking good for another year as 2013 data points are below 2012 data points and are again missing expectations of 'this year there really will be recovery.'

Indeed, futures were lower, substantially so, before and even more so after the retail sales data. Nonetheless they dutifully tried to recover. Then the Michigan Sentiment and inventories data hit and they gave up. Stocks tumbled into midmorning.

Of course, with Fed liquidity in place (and solidified by the weak economic data) as well as Europeans and the US retail investor trying to catch the 4 year US equities rally bus just before it returns to the bus yard, the bids returned. Midmorning was once again the turning point and stocks, while not surging upside, produced a solid recovery into lunch and then managed to angle higher into the close. No green on the tape, but the Dow was virtually flat and all indices posted nice rebounds. Again.

SP500 -4.52, -0.28%
NASDAQ -5.21, -0.16%
DJ30 -0.08, -0.00%
SP400 -0.36%
RUTX -0.44%
SOX -0.46%

Bad economic data? There is true pain in the American populace as the Great Recession not only lingers but continues its pattern of gains to end and begin a year only to be followed by a slump. Indeed, 401K retirement account loans jumped 28% in Q4 2012 with 1/5 of those with 401k's now having loans against them to make ends meet.

No problem. As long as the economy is not in full dive mode the Fed dollars, the European euros converted to dollars, and the US investors, worried suddenly that he has missed out on the move, are filling in the dips with their cash. Thus the US stock market avoided a Friday selloff and capped off a strong recovery week by at least hanging onto the gains.


What about those people out if the workforce? The rise, and fall, of the 'full-time part-time' worker.

Many hopeful workers hung on for months and months then years and years at low paying part-time jobs, hoping to use that job as the usual path to full employment. The financial stations for awhile touted the rise in part-time workers in each monthly jobs report that would of course lead to full time jobs. Now the stations don't even bother talking about that because it is clear that the policies in place that are helping perpetuate the Great Recession are perpetuating 'full-time part-time' workers. There are others, such as Mark Zandi, perched in their ivory towers reading data, who remain convinced the recession is over and jobs are trending positively. Yet, they fail to recognize or acknowledge that the part-time jobs are not turning into full-time jobs. As I said early in 2012, if you create a million part-time, lowest pay scale jobs, is that as good as the same number of full time, leading edge technology jobs? Of course it is not, but somehow that critical analysis is lost in the current debate.

The problem is, even those workers, not officially counted in the headline unemployment number because they had jobs (albeit well below their skill level) but picked up in the so-called U6 report as underemployed due to economic reasons, see the handwriting on the wall and are simply leaving the workforce. U6 dropped from 14.3 to 13.8 in one month! Over 90M (some say over 100M) non-institutionalized (i.e. not in jail) working age US citizens are now out of the work force. Not for disability, just a decision not to work.

Indeed, WHY WORK at a low pay job with no hope of advancement when you can do NOTHING, collect federal and state benefits, and have the SAME or even more disposable income than when you were working? The reverse incentives created by our policies have blunted our inherent desire to work and contribute to society as people make the economic decision to quit low paying, dead end jobs, collect benefits, and perhaps work some cash basis odd jobs where they don't have to report the income and pay taxes. These people are not stupid. They are making the rational ECONOMIC DECISION placed before them not to work.

Have you ever wondered why the Administration is pushing so hard for a hike in the minimum wage? It is an unspoken recognition that its policies have turned the US innovation and entrepreneur jobs engine into a stagnant, cost-avoiding assembly line mindset. The costs associated with employees due to federal programs such as the Affordable Healthcare Act force businesses to look at employees in an entirely different light in order to compete internationally. Thus part-time jobs now dominate the employment scene. Moreover, given the stagnant economy, the majority of the jobs created anyway are low end, low paying positions.

So, in order to avoid a mass migration into poverty that could be hung as an albatross around the Administration's neck, it and other proponents of the policies creating the low-wage problems tout a minimum wage that will keep those forced into low paying jobs for lack of any other positions from being a poverty statistic. What used to be starter jobs on the way to better permanent jobs are now 'full-time part-time' jobs, and instead of advancing through the ranks, the only way to get them a higher wage and out of poverty status is by raising the minimum wage. That is how bad this economy is.



OTHER MARKETS

Dollar: 1.3086 versus 1.3111 euro. Down on the week, testing the 50 day EMA as expected. No issues really, though is it not surprising that the SP500 and company are moving sharply higher as the dollar fades? Should not the dollar track economic strength? For that matter, shouldn't stocks? They are not. Given the weak economy, stocks are tracking liquidity not economic strength. For liquidity to continue they feed on weak data. Not diving off the cliff data, but just stagnant 1 step forward, 1 step backward data. That keeps the Fed in the game, and in the absence of true economic growth, that works for stocks. At least it works until it doesn't. History shows there is always a tipping point. It just doesn't show what that tipping point is for each economy.


Bonds: 1.72% versus 1.79% versus 1.81% 10 year Treasury. Cyprus then Japan and bonds spike. Then last week they started to test, sharply. No worries. Friday a big gap upside in bonds and another drop in yields. Rising bonds are not a sign of economic strength. Despite the Fed saying it will start ending QE in the summer, bonds are up. Perhaps it was Bernanke stating that tapering would be accomplished by charging interest on deposits at the Fed. Perhaps it is a belief that the economy is not that strong and heading for another summer slump.


Oil: 91.29, -2.22. Oil is in a full frontal dive, breaking the 200 day SMA and starting to test support at the 90 level. It looks as if the 78% Fibonacci double top is working, but that works because it shows supply and demand in the chart itself. It reflects the real world trading of oil and it forecast a decline. Oil is not needed as much given a weak Europe, a self-slowing China, a weaker Australia, and of course what looks to be a weaker US in progress. IEA lowered its world outlook on Thursday, simply reading the tea leaves.


Gold: 1500.90. -64.00. Gold was destroyed Friday along with silver. Why? Some say it is because Europe is forcing the sale of gold reserves by member states that cannot otherwise reach bailout austerity terms. Think of it as our system of Medicaid. In order to get it you have to have exhausted all assets or agree to turn over your last ones to the government. That, however, is not really what is going on here. Remember over a year ago when Germany offered its 'final solution' for bailing out the hopelessly bankrupt south? It said it would provide funds IF proper collateral was put up. As an example, Germany said 20% of the amount of the bailout amount in gold would suffice. Just an example mind you. The EU won't require the gold to be sold; it will take it in then hand over the euro. German plan enacted without officially getting its approval.

Why is gold falling? Heaven only knows. Of course there is conspiracy talk. Why would gold fall when the world economies are in turmoil, money printing is rampant and getting worse (e.g. Japan), world geopolitical turmoil (North Korea, Iran), drought in many regions of the world. Gold seems too big for a conspiracy, however.

Then again, LIBOR was supposedly such a big market with so many players that NOBODY could rig the market. We started calling attention to how LIBOR rates were not moving but a basis point or two even as the economic turmoil escalated in Europe yet again. Unlike the original crisis when rates exploded, they were a mere fraction of those levels even as Europe's problems approached meltdown status.

Turns out, MASSIVE manipulation involving HUNDREDS of institutions and thousands of people was taking place. A market that was too big and too liquid to manipulate was indeed manipulated. Our Fed even knew about it as did Treasury Secretary Geithner. So WHO IS TO SAY the gold market is not being manipulated? Indeed, the LIBOR manipulation may have simply been a DRY RUN on how to do it! With the tensions in the world and the money printing taking place, gold should be at $2,000. It is heading sharply lower. Something is amiss in this market.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +5.21 points (+0.16%) to close at 3294.95
Volume: 1.443B (-20.01%)

Up Volume: 611.86M (-220.26M)
Down Volume: 851.32M (-117.62M)

A/D and Hi/Lo: Decliners led 1.47 to 1
Previous Session: Decliners led 1.05 to 1

New Highs: 103 (-81)
New Lows: 21 (+4)

S&P
Stats: +4.52 points (+0.28%) to close at 1588.85
NYSE Volume: 620M (+2.29%)

A/D and Hi/Lo: Decliners led 1.6 to 1
Previous Session: Advancers led 1.62 to 1

New Highs: 267 (-390)
New Lows: 84 (+21)

DJ-30
Stats: +0.08 points (0%) to close at 14865.06

BREADTH: About what you would expect. Breadth lags on reversal days so it was down 3:2 at the close. Not bad given how negative things looked through midmorning.

VOLUME: Vastly mixed with NASDAQ volume mercifully falling, but that was after a big Thursday on the IDC PC sales data (-14.1%, largest ever). Back to below average on NASDAQ, not bad for a down day, up to average on NYSE. Given the recovery off the low, we will say that is okay.


THE CHARTS

SP500. No issues, falling but holding easily over the 10 day EMA and then rebounded. Ho hum, another recovery in the uptrend.


NASDAQ. Quite the week, recovering the channel Monday, extending the move Wednesday, coasting into the weekend Friday with a reach lower and recovery off the 10 day EMA. NASDAQ looked ready for the fork. Bought itself new life even with the issues around some of its largest caps and their connections to the waning PC business. Better come up with a BAILOUT plan for these techs. No business should ever fail, right, particularly the big ones.


DJ30. Another normal week for the Dow, rising off the 20 day EMA, and just an intraday tap lower, to again approach the top of the channel. Friday just took a day off but still finished flat.


SP400. Followed through on the prior Friday's test of the 50 day EMA and rebound. Made it back into the channel Thursday (we are going to give it that achievement), but slipped lower Friday below the trend. Holding the 10 day EMA, still trending higher as it put in a higher low, but it now has to put in a higher high to keep the trend in place.


Russell 2000 small caps. Followed up the bounce off the 50 day EMA with a run to the trendline. Tapped it Thursday, faded to the 10 day EMA Friday. Okay. Now we see if RUTX holds with another higher low and can break back into the range AND take out the March high. Still a question mark.


SOX. Strong surge to the trendline, bouncing off the neckline in the head and shoulders pattern. Made it back up to the November trendline Wednesday, then faded. Friday tested the 20 day EMA on the low and rebounded to almost flat. Showing some guts here. A break and hold through 437.50ish is an important move to the upside.


SUMMARY: A continuation of the recovery off the Friday jobs report selloff and reversal. RUTX and SOX are still problematical, but they took a shot and could not take the rest of the market with them. Will have another shot this week but SOX left itself in position where it could bounce.



LEADERSHIP

Still in a few groups stealing most of the move.

Drugs/Healthcare. CELG, AMGN, BIIB, ACAD, ARRY.

Retail. TJX, ROST, DECK, VVTV, PCLN, LTD, AMZN, PNRA.

Consumer Oriented: CLX, CL, PG, MMM,

Toilet contenders:

Metals: FCX, SCHN, SID, AA.

Commodities: Trending lower as SP500 trends higher.

There are some MAJOR divergences in leadership and losership. Losers involve important groups. Leadership groups are a bit consumer related, and if the consumer falters as well the market losses some important upward push.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.06; -0.18
VXN: 13.88; -0.21
VXO: 11.68; -0.01

Put/Call Ratio (CBOE): 1.15; +0.28

Bulls versus Bears

Bulls fell modeslty, bears rose modestly. A bit of worry as stocks sold to the Jobs report. Now that stocks have recovered some ground sentiment might improve a bit or hold steady, but a bit less bullish, a bit more bearish, and that helps the uptrend overall.



Bulls: 50.5% versus 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. Has hit a soft patch. Higher then rolling over below the January and February highs. That market hiccup ahead of and to the Jobs Report. Now back up so . . . probably hangs over 50. 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: 20.6% versus 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.


MONDAY

A couple of regional PMI reports, housing starts, industrial production. Important if you are interested in the economy and jobs, not so much if you are wanting the stock market to climb. It is not a complete detachment of economics and the market: if the economic numbers implode the market will do so. But jobs were bad, seriously, systemically, engrained, take decades to fix kind of bad . . . yet stocks recovered that day and into this week.

So, with economics disintegrating but doing so similar to a controlled building implosion, there is not that total run for the hills. Sure bonds are running higher, commodities are tanking, but no problems with the economy. Just look at gold, right? It is going down so all must be just fine. Either way, without really bad data, really bad, stocks rely on the liquidity, because so-so bad or just bad data only works to keep the Fed in the game.

Looked across the market for plays. Harder to find upside in the respect earnings are at hand and we don't typically like to play new plays just ahead of earnings. Of course there are some, we have them, and we will see if the market wants to go higher.

That is the question. Great recovery. SP400, RUTX, SOX trying to get back in the channel. Will they pull the rest of the market back or will the rest of the market drag them on. More likely the latter given the amazing resilience shown after the jobs report as well as last Friday when a 50 point downside move was reason to buy the Dow. Too much money coming in to deal with any bad economic news.

That won't last forever, but trying to pick the moment outside of the market showing you is a fool's errand. So many sites are running 'the end is near or here' stories but history tells you that these bubble endings can go on and on for years before imploding. Recall the dot.com boom when a full two years before the crash I was reading very serious market mavens saying the internets were a bubble that was going to explode in weeks if not days. Didn't. For another two years.

The moral: all bubbles end, you just don't know when. Watch the leadership in the bubble. When it goes down and volatility is high, you likely are at the end of the line on the move. Time to sell and start playing the downside. Not there. We can get selloffs; just had one. But it was not THE selloff.

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Support and resistance

NASDAQ: Closed at 3294.95

Resistance:
3321 from April 2000
3360 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

Support:
3271 is the 2013 high
3234 is the November 2012 up trendline
3227 is the April 2000 intraday low
The 50 day EMA at 3209
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 2011 up trendline at 3158
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
The 200 day SMA at 3071
3062 is the December 2012 prior peak
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 1588.85

Resistance:
1615 is the upper trendline in the channel

Support:
1576 from October 2007, the prior all-time high
The 20 day EMA at 1564
1556 from July 2007
The November up trendline at 1549
1539 from June 2007
The 50 day EMA at 1539
1531 is the recent high
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
The 200 day SMA at 1447
1440 from November 2007 closing lows
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 14,865.06

Resistance:
14,945 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.

Support:
The 20 day EMA at 14,593
The November up trendline at 14,375
The 50 day EMA at 14,304
14,198 from the October 2007 high
14,149 is the February 2013 high
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
The 200 day SMA at 13,452
13,413 from the late September 2012 low
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 9 - Tuesday
Wholesale Inventories, February (10:00): -0.3% actual versus 0.5% expected, 0.8% prior (revised from 1.2%)

April 10 - Wednesday
MBA Mortgage Index, 04/06 (7:00): 4.5% actual versus -4.0% prior
FOMC Minutes, 3/20 (9:00)
Crude Inventories, 04/06 (10:30): 0.250M actual versus 2.707M prior
Treasury Budget, March (14:00): -$107.0B expected, -$198.2B prior
Treasury Budget, March (16:00): -$106.5B actual versus -$107.0B expected, -$198.2B prior

April 11 - Thursday
Initial Claims, 04/06 (8:30): 346K actual versus 365K expected, 388K prior (revised from 385K)
Continuing Claims, 03/30 (8:30): 3079K actual versus 3058K expected, 3091K prior (revised from 3063K)
Export Prices ex-ag., March (8:30): -0.2% actual versus 0.6% prior
Import Prices ex-oil, March (8:30): -0.2% actual versus 0.1% prior (revised from 0.0%)
Natural Gas Inventor, 04/06 (10:30): -14 bcf actual versus -94 bcf prior

April 12 - Friday
Retail Sales, March (8:30): -0.4% actual versus 0.0% expected, 1.0% prior (revised from 1.1%)
Retail Sales ex-auto, March (8:30): -0.4% actual versus 0.0% expected, 1.0% prior
PPI, March (8:30): -0.6% actual versus -0.1% expected, 0.7% prior
Core PPI, March (8:30): 0.2% actual versus 0.1% expected, 0.2% prior
Michigan Sentiment, Preliminary April (9:55): 72.3 actual versus 78.0 expected, 78.6 prior
Business Inventories, February (10:00): 0.1% actual versus 0.4% expected, 0.9% prior (revised from 1.0%)


April 15 - Monday
Empire Manufacturing, April (8:30): 5.0 expected, 9.2 prior
Net Long-Term TIC Flows, February (9:00): $25.7B prior
NAHB Housing Market Survey, April (10:00): 45 expected, 44 prior

April 16 - Tuesday
CPI, March (8:30): -0.1% expected, 0.7% prior
Core CPI, March (8:30): 0.2% expected, 0.2% prior
Housing Starts, March (8:30): 930K expected, 917K prior
Building Permits, March (8:30): 945K expected, 946K prior
Industrial Production, March (9:15): 0.3% expected, 0.7% prior
Capacity Utilization, March (9:15): 78.4% expected, 78.3% prior (revised from 79.6%)

April 17 - Wednesday
MBA Mortgage Index, 04/13 (7:00): 4.5% prior
Crude Inventories, 04/13 (10:30): 0.250M prior

April 18 - Thursday
Initial Claims, 04/13 (8:30): 355K expected, 346K prior
Continuing Claims, 04/6 (8:30): 3068K expected, 3079K prior
Philadelphia Fed, April (10:00): 2.5 expected, 2.0 prior
Leading Indicators, March (10:00): 0.0% expected, 0.5% prior
Natural Gas Inventories, 04/13 (10:30): -14 bcf prior

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

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

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