Tuesday, May 28, 2013

Another Test Lower, Another Recovery

MARKET SUMMARY

- Another test lower, another recovery. Good action, not convinced the market rallies from here, but with good stocks set up, if they go, we go too.
- World markets on edge as the US Fed talks of stimulus removal. With the economy as poor as it is, this does not feel good for the US market.

Everyone was watching Japan Thursday night after its wild ride for the week and the US' down and up, or at least up off the lows, session. Japan sold off hard overnight. Then Japan recovered to a modest loss. After the Nikkei closed its futures dove down to the lows during the session. Japan is a train wreck in progress.



The Finance Minister said he doesn't have another plan if this massive liquidity gamble doesn't work.


If things get really ugly excellency, I will clear a path there and you make a run for it.

You know, he is right. There is no answer. If it doesn't work it won't matter what the plan is because everything will have imploded, blown apart, ___________ (interactive report: you fill in your favorite descriptive word/phrase).

Thus even though Japan recovered, US Durables Orders recovered (3.3% versus -5.9% March), Business Investment improved by 1.2%, US futures were less than impressed.

Again stocks started lower, mimicking the Thursday open. Similar to Thursday, stocks recovered off of near support. No major rush higher, just a grind higher through the session.

The slow recovery grind bumped up the pace in the last hour of trade and that pushed DJ30 positive and the other indices erased their declines. A wash day in the end, but constructive as again the indices sold off then recovered. Shaking out the weaker holders and then coming back.

SP500 -0.91, -0.06%
NASD -0.28, -0.01%
DJ30 8.60, 0.06%
SP400 -0.42%
RUTX FLAT
SOX -0.05%

Volume -28% NYSE, -20% NASDAQ

That is good action, but I can tell you the sentiment here: good yes, but has not proved a thing at this point. Bumped the top of the channel on SP500, DJ30 and not much of a pullback. Resilient, showing good action, but . . .

So you watch the leadership and see how they hold up. GOOG is testing the 20 day EMA. STX fine. BIDU fought off selling. Financials held up. LL held support. KORS held the 50 day EMA and bounced. DDD is holding support at the 20 day. NFLX is in a nice 20 day EMA pullback. PCLN is testing the 10 day EMA. Not all are textbook flags, but they are holding support and working on a pullback.

There were some solid moves as well, e.g. WWWW, VVTV. Not necessarily household names, but performing just fine and frankly they have been making just as much or more than the well-known names.

OTHER MARKETS
Dollar stronger: 1.2929 versus 1.2934

Bonds flat: 2.01% 10 year

Oil flat: 94.15, -0.10

Gold off modestly: 1386.90, -4.90


Again, so far so good but not resolved yet. That leaves many of these plays looking good for next week, just need to finish the test and make the move back up.

Around here, despite the patterns and the good action on the pullbacks, we think there is more downside to come. That is a gut feeling based upon years in the markets. I will, however, be the first to tell you that no matter how strong my gut feeling, you have to go with what the market shows you. So we are ready to act even if we don't necessarily believe the market will manage a significant rally without a further test.




But what about the longer term?

That is the short term take. What about as the year progresses? I don't have a good feeling about how the US market and other stock markets will react to the US withdrawing stimulus. If the US economy was worth a flip the Fed could more or less get away with pulling some stimulus. Nothing like growth to help markets. It's the next best thing if the Fed is not providing all the free money the financial system wants.

World markets started to struggle on the US news this past week. Markets have a sense of economics. They rally ahead of economic improvements. This one has rallied because of massive stimulus even in the face of pathetic economic activity. Even with improvements in the housing market, you see top line earnings, the sales, falling far short. Indeed, top line misses outnumbered bottom line misses this last earnings season. Companies are selling less and those that are making the bottom line estimates have to cut costs somewhere. People? We know that is happening in terms of more part-time jobs thanks to the structure of Obama-care that rewards making employees part-time, hiring more, working them all less. Thus the modest increase in jobs is a FALSE POSITIVE. It does not mean what it has meant in the past for the economy.

What this has shown is a classic, textbook example of how businesses react to regulations: they seek the lowest cost. They will try to find a way to exist. It may be a reduced profit, it may be that many go out of business and just a few survive, but those that do will have cut costs to the bone given the regulations in order to survive. It is not their potential, just, as in the third 'Matrix' show, a form of existence.



So they survive, but our standard of living falls.

I have a feeling the Fed wants to remove stimulus even if there is a flicker of economic improvement such as seen in the housing market. The Fed has too much debt with a $4T balance sheet. Unwinding that, if it can, will take untold years.

Of course there could be problems along the way forcing the Fed to defer unwinding. Those unforeseen consequences are a bear when you have it hanging out so far. Kind of like miscalculating the landing on that 720 with rotation.




The Fed fears it has created other problems and continuing its actions will cause more harm. The market I feel senses this and thus the shudders as the Fed discusses it, sets plans in place. Unless there is serious economic growth to drive stocks, pulling the driver of stocks for four years will cause serious issues. It starts as some hiccups, but can turn over fast and hard (didn't want to go into fast and furious for obvious reasons) when the market figures it all out.



Have seen it before but not to this extent. The distortions are massive with the amount the Fed has on its books, the extraordinarily low interest rates, and banks that are still over-leveraged and unable to make money the old fashioned way. The Fed has turned the banks into a welfare class just as a section of the US has become a welfare class.

Maybe, maybe the Fed can successfully kick this down the road. With the policies in place the past 5 years, however, with the regulations, increased taxes, and laws that hem in and retard investment and entrepreneurs, growing our way out of this is a pipe dream.

Thus I am worried about the market and the economy as the year plays out and the Fed acts as it feels it must, i.e. withdrawing stimulus. The market and the economy will then have to fend for themselves and we can only hope they don't fall flat. Indeed, we ALSO don't want them to just stumble along for years and years to come as well, a la after the Great Depression when the New Deal and the massive social programs it initiated drained the life out of the US economy until WWII gave businesses a reason to again invest in technology to fight the war. That fortunately continued after the war and launched the US into economic dominance given that the other technologically powerful countries were in ruins.

Energy independence could help accomplish that again. It can open the door to other technologies because we free up money shipped elsewhere to be used here at home. In an ironic twist, energy independence could be the very thing that fosters and accelerates new energy technology and sources that truly work. When we let businesses and entrepreneurs do what they do best, we generate capital and that capital is used in ingenious ways to come up with ingenious inventions.


A pep talk and a request.

Every good trader knows he or she can be wrong half the time and still make fantastic money in the stock market. Indeed it is the fact of recognizing you WILL be wrong, accepting that and acting accordingly when you are wrong . . . and when you are right. When you do that you will be more right than wrong in terms of making money.

That is a powerful truth to recognize: you can make great money being right half the time. Your confidence goes up, you are further empowered to stick to your plan, and then the plan rewards you more and more. Powerful. Life changing.

That was a long way around saying we are uncomfortable that this little pullback is all the selling on this leg but if the market does rally from here that is what it does and we use it to make money. Sometimes it helps to say it out loud (or at least write it). It is no secret. It is great to see the light and fire in the eyes of those who finally get it. It is even better to hear from them six months, a year, 2 years later and how they are successes in trading and in other things in life because of that. Awesome.

Speaking of awesome, we have had an awesome year thus far. Part of the reason for that are those outstanding people who have sacrificed for our liberty. Millions have fought for not only our liberty but for people in other countries who do not enjoy our freedoms. My father fought. My father in law fought. The greatest generation. And now a new great generation of more volunteers willing to pick up the fight for our freedoms. We need to honor them not only with gestures and kind words as we see them, but also in our actions in DOING OUR PART to make sure the liberties and freedoms they fight for are not squandered on the home front by lack of diligence. Right now with these various DC scandals we see the result of our complacency. Honor the millions who died and were wounded in defense of liberty by speaking out, asking 'why?' to our elected officials, and demanding that our government honor those men and women by not trampling what they sacrificed so much for to protect.

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

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

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Monday, May 20, 2013

Just Expiration or Just More Buying?

MARKET SUMMARY

- Just expiration or just more buying? Rally kicks into gear again to close out May options.
- After Thursday's economic data splashed cold water on the hot and heavy rally, Michigan Sentiment, Leading Indicators purportedly reignite the upside.
- Sentiment at levels that prompted prior pullbacks in the rally.
- Letting positions ride higher, but after this run the risk/reward is overall obviously lower. Still opportunity, but you definitely have to pick your shots and know your game plan.

An impressive ramp to the close finished the week with panache as the indices ran to new highs with another melt higher, this one to end expiration.

SP500 17.00, 1.03%
NASD 33.73, 0.97%
DJ30 121.18, 0.80%
SP400 0.98%
RUTX 1.11%
SOX 1.37%

Volume rallied 17% NYSE, down 6% NASD but did rebound late. Expiration? Likely. NASD had solid volume all week. Sign of the retail investor returning? Likely not but it is a nice thought that the networks and a few hopeful bullish commentators recycled from the 1990's keep saying.

No, don't get me wrong. There are some retail investors returning. When NASD caught fire and GOOG, NFLX, PCLN filled in for the massive void left by AAPL's rot, the retail investor got interested. The GOOG/PCLN race higher is interesting, kind of like the McGuire/Sosa home run battle. Hopefully we will not have the sad realization that one of their bats (i.e. earnings reports) was illegally juiced. CL? CLX? PG? No sex appeal even in great gains. Throw out LNKD and GOOG, and then mix in MSFT's 'revival,' and you get the retail interest: 'Look Martha, looks as if GOOG is the new QCOM. Remember QCOM up over $200 in a day on its stock split announcement? Those were the days . . .' Toss in some stock splits from CRM and Whole Foods (Is it now known as Half Foods?) and you get some interest brewing. Maybe they return. We are, however, making great money in the interim.

The economic data was blamed Thursday for the market decline. The economic data Friday was credited with the surge. Whatever works as the analysts play pin the tail on the cause of the rally.

Michigan Sentiment topped expectations with the biggest beat ever:
83.7 versus 77.9 expected versus 76.4 prior.

LEI April: 0.6% versus 0.3% expected, -0.2% prior (revised from -0.1%)


OTHER MARKETS
Dollar stronger: 1.2839 vs 1.2887. Should be given the better data.

Bonds dove, continuing their back and forth action, though the trend is clearly lower: 1.94% versus 1.87%. This is also in line with better data, but it also continues the Japan-induced bond selloff.

Oil rallied even with a stronger dollar: 96.02, +0.86

Gold hammered again: 1358.30, -28.60


Juxtapose the economic data reported with what companies said Friday. ADSK, DELL, JCP, JWN all missed big on earnings. Guidance was not great. As the Q1 earnings season winds down the theme is a weakening of earnings growth and the continuing problem of top line earnings misses. While there are many companies that reported solid results all around, it is clear the economy is still not strong enough to produce top line earnings growth. As a consequence, companies are not feeling great about the future, and that continues one of the major problems in the US: continued lack of investment in business and that means continued weak jobs growth, exacerbated by the changes the healthcare law is pushing down on the labor market. But, don't worry, Michigan Sentiment is super.

Not complaining, just looking at the data and all of the major problems and scandals in the US you have to keep your sense of humor to temper your anger and frustration as to what is going on.

But . . . the market was strong. Very solid. Given given the strength we let positions run. No reason to cut them off. The risk/reward for new plays at this level is still, overall, less than ideal. Many stocks are not in buy points, but some money continues to rotate into new areas, and there are individual very good patterns. BIDU for example. This coming week we will see again if the buyers stay in, and if so, we pick up well-positioned stocks that have good risk/reward, i.e. good upside potential versus small downside based upon support.

Still on the road in the Midwest, seeing some of the US and just how much of a recovery this is. Joplin, Missouri has posted a strong comeback from the tornado and enjoyed spending time at the Art Walk held downtown every third Thursday and enjoying some rather unusual burgers and dogs as Instant Karma.

There is activity, about 1.5% to 2% annual GPD activity and of course that comes from the Fed's $85B/month. The notion from some market 'mavens' and purportedly some on the Fed is that the economy can do well even if QE is removed. Some of those on the Fed, I feel, really believe the Fed may be doing more damage than good with the QE and thus want us to believe the economy can get by without QE. Maybe it can; the government is crowding out so much investment that perhaps if QE ended banks would be forced to lend to make money and the balance in the economy would slowly start to be restored. With the healthcare law's impact on the jobs market, with higher taxes, with so many thousands of new regulations burdening people and business, however, any move recovery would continue to be painfully slow and well below our potential.

That makes for an interesting summer of taper and possible ramifications, but the market was not worried about that Friday.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +33.72 points (+0.97%) to close at 3498.97
Volume: 1.806B (-6.52%)

Up Volume: 1.33B (+408.15M)
Down Volume: 462.87M (-547.13M)

A/D and Hi/Lo: Advancers led 2.2 to 1
Previous Session: Decliners led 1.33 to 1

New Highs: 261 (+24)
New Lows: 17 (-10)

S&P
Stats: +17 points (+1.03%) to close at 1667.47
NYSE Volume: 724M (+17.53%)

A/D and Hi/Lo: Advancers led 2.39 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 697 (+122)
New Lows: 105 (+18)

DJ-30
Stats: +121.18 points (+0.8%) to close at 15354.4

BREADTH: Solid bump but not a huge ramp necessarily matching the index gains. 2.2:1 NASDAQ, 2.4:1 NYSE.

VOLUME: Again mixed and flip-flopped. Down 6.5% NASDAQ, up 17% NYSE. Down on NASDAQ but still solid and above average. Not bad. Note that volume was elevated all week on NASDAQ so even though volume faded Friday the overall trade, whether due to expiration or not, was elevated as the index climbed.


THE CHARTS

SP500. Rising toward that upper channel line, and we are letting the SSO play and indeed other plays continue to rally toward that resistance. Again, this does not mean that the index HAS to turn over there. NASDAQ broke through. As seen in January and February, it can slide up the trendline for weeks. So we let it run and pick specific plays.


NASDAQ. Broke through the upper channel line Tuesday, and after hesitating Thursday, powered higher Friday. Lower trade but still above average volume trade. With GOOG, PCLN and NFLX helping lead it higher, NASDAQ is overcoming the slow days for now.


DJ30. As with SP500, the Dow is heading toward its upper channel line, and looks set to test it. Then we see the reaction. Will SP500 and DJ30 reaching that resistance cause a market pullback, or does the money continue to flow in and keep the index running up that trendline.


SP400. Broke through the November trendline, faded to test Thursday, then rallied back up Friday. Back in the channel again, out where a friend is a friend . . .


RUTX. Still moving up and closing in on the November trendline.


SOX. Quick test of the break of resistance through Monday, then a steady move higher, interrupted by the Thursday weakness, but then right back up Friday. NASDAQ and SOX are a powerful combination for the market rally.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.45; -0.62
VXN: 13.3; -0.42
VXO: 12.24; -0.34

Put/Call Ratio (CBOE): 0.81; -0.18


Bulls versus Bears

Bulls continue to rise toward the September 2012 and February highs that marked peaks in the stock market before a pullback. Normal pullbacks, but pullbacks nonetheless.



Bulls: 54.2% versus 52.1% versus 47.9% versus 44.3% versus 47.4% versus 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.

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: 19.8% versus 19.8% versus 18.8% versus 19.6% versus 20.6% versus 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

Not as much data, but Bernanke speaks Wednesday ahead of the FOMC minutes release. Earnings slow way down. The market is . . . on its own.

I have said it many times, to the point of distraction it would seem, but after this run the risk/reward is lower right now for generally buying the market. I mean SP500 and DJ30 are near their upper channel lines. They have to break resistance to keep moving, or at least ride up resistance. They can do it no doubt; seen it before. But, they are not in as good of position to buy, say with some SSO, as they were a month back. Obvious.

That makes this market a bit more problematical right now. It can slide higher along the channel line or break higher as noted, but it is hard to gauge how much more upside there is here. You don't want to cut it off by closing positions, but the question is how much more do you buy here.

Ahhhh. This is now what the TV people call a 'stock pickers market.' As if to get the great returns it is typically not. Anyway, it simply puts a premium on play selection and KNOWING what you want from a play in terms of what you can realistically and logically make on it if it works out. You want to have a good exit point as well; have to keep the requisite amount of upside reward to downside risk. They are out there and we will continue to look at them. We just have to recognize that the market and sentiment is at points in past runs where it topped and faded for a consolidation. With that in mind we can look for and enter new plays and still take advantage of any upside. If the market continues upside then our current positions make us more money and our new ones add to that.



Support and resistance

NASDAQ: Closed at 3498.97

Resistance:
3521 is the August 2000 low.

Support:
3455 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low
3343 is the November 2012 up trendline
3321 from April 2000
The 50 day EMA at 3307
3227 is the April 2000 intraday low
The 2011 up trendline at 3203
3197 is the September 2012 post-bear market high
3171 is the October intraday high
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
The 200 day SMA at 3125
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
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 1667.47

Resistance:
1673 is the upper trendline in the channel

Support:
The November up trendline at 1699
1598 is the April 2013 high and former all-time high
The 50 day EMA at 1597
1576 from October 2007, the prior all-time high
1556 from July 2007
1539 from June 2007
1531 is the recent high
1499 from January 2008
The 200 day SMA at 1478
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
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


Dow: Closed at 15,354.40

Resistance:
15,460 is the upper channel line for the trend off the November low.

Support:
14,888 is the April peak and prior all-time high
The November up trendline at 14,840
The 50 day EMA at 14,714
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
The 200 day SMA at 13,716
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
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

May 13 - Monday
Retail Sales, April (8:30): 0.1% actual versus -0.3% expected, -0.5% prior (revised from -0.4%)
Retail Sales ex-auto, April (8:30): -0.1% actual versus -0.2% expected, -0.4% prior
Business Inventories, March (10:00): 0.0% actual versus 0.3% expected, 0.0% prior (revised from 0.1%)

May 14 - Tuesday
Export Prices ex-ag., April (8:30): -0.5% actual versus -0.3% prior (revised from -0.2%)
Import Prices ex-oil, April (8:30): -0.2% actual versus -0.1% prior (revised from -0.2%)

MBA Mortgage Index, 05/11 (7:00): -7.3% actual versus 7.0% prior
PPI, April (8:30): -0.7% actual versus -0.5% expected, -0.6% prior
Core PPI, April (8:30): 0.1% actual versus 0.1% expected, 0.2% prior
Empire Manufacturing, May (8:30): -1.4 actual versus 3.5 expected, 3.1 prior
Net Long-Term TIC Flows, March (9:00): -$13.5B actual versus -$13.3B prior (revised from -$17.8B)
Industrial Production, April (9:15): -0.5% actual versus -0.2% expected, 0.3% prior (revised from 0.4%)
Capacity Utilization, April (9:15): 77.8% actual versus 78.3% expected, 78.3% prior (revised from 78.5%)
NAHB Housing Market Index, May (10:00): 44 actual versus 44 expected, 41 prior (revised from 42)
Crude Inventories, 05/11 (10:30): -0.624M actual versus 0.230M prior

May 16 - Thursday
Initial Claims, 05/11 (8:30): 360K actual versus 330K expected, 328K prior (revised from 323K)
Continuing Claims, 05/04 (8:30): 3009K actual versus 3005K expected, 3013K prior (revised from 3005K)
CPI, April (8:30): -0.4% actual versus -0.2% expected, -0.2% prior
Core CPI, April (8:30): 0.1% actual versus 0.2% expected, 0.1% prior
Housing Starts, April (8:30): 853K actual versus 970K expected, 1021K prior (revised from 1036K)
Building Permits, April (8:30): 1017K actual versus 950K expected, 890K prior (revised from 902K)
Philadelphia Fed, May (10:00): -5.2 actual versus 2.5 expected, 1.3 prior
Natural Gas Inventor, 05/11 (10:30): 99 bcf actual versus 88 bcf prior

May 17 - Friday
Michigan Sentiment, May (9:55): 83.7 actual versus 78.5 expected, 76.4 prior
Leading Indicators, April (10:00): 0.6% actual versus 0.3% expected, -0.2% prior (revised from -0.1%)

May 22 - Wednesday
MBA Mortgage Index, 05/18 (7:00): -7.3% prior
Existing Home Sales, April (10:00): 4.98M expected, 4.92M prior
Bernanke Testimony (10:00)
Crude Inventories, 05/18 (10:30): -0.624M prior
FOMC Minutes, 5/1 (14:00)

May 23 - Thursday
Initial Claims, 05/18 (8:30): 348K expected, 360K prior
Continuing Claims, 05/11 (8:30): 3005K expected, 3009K prior
FHFA Housing Price Index, March (9:00): 0.7% prior
New Home Sales, April (10:00): 425K expected, 417K prior
Natural Gas Inventories, 05/18 (10:30)

May 24 - Friday
Durable Orders, April (8:30): 1.6% expected, -6.9% prior (revised from -5.8%)
Durable Goods -ex transports, April (8:30): 0.5% expected, -2.9% prior (revised from -1.5%)



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

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

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Monday, May 13, 2013

Another Soft Start and Choppy Morning

MARKET SUMMARY

- Another soft start and choppy morning, but buyers return as growth leads again.
- NASDAQ, SP400 bumping trendline but don't appear afraid of it.
- Hilsenrath WSJ tapering article released after the close. Restates the obvious but will lofty, liquidity driven markets get rattled?
- ECB, South Korea, now Vietnam and Poland cut rates.
- Interesting economic facts: stock market participation, foreclosures, unemployment.
- History repeats: after a 4 year run stock ownership is at its lowest since 1998. The masses miss out and that begs the question what wealth effect?
- After a lull, a huge week for data.

Stocks chopped around in rather violent swings all morning; two up and two down. The indices were mostly positive at the open but by lunch east coast time two big moves took the futures modestly negative. A surge by PCLN could not offset a 29% jump in Chinese loan delinquencies or a Japanese bond market that again closed limit down.

Bernanke spoke in the morning and investors wondered what he would say about the economy. His talk was on prevention of too big to fail problems and only tangentially touched upon what the Fed's policy would be. Those polices were of particular interest to investors given the rumor tweet Thursday about a WSJ tapering article.

Bernanke avoided the area for the most part, stating the obvious: the economy has not fully recovered the jobs lost in the recession. The economy is still struggling with the effects of 2007 and 2008.

No kidding about the jobs. Construction lost 2m jobs and has recovered 200K. Middle tier jobs suffered the majority of jobs losses in the collapse; low tier jobs have replaced them, no small part due to the President's healthcare law that forces companies to hire more low pay workers and work them less in order to reduce costs as much as possible. They are not evil companies not hiring just to hurt people or make the President look bad; they are just doing what they must to compete in the environment the President's law has created. And that means more lower paying jobs with workers working less.

The interesting thing is, even those in that tier of jobs see what is going on. I was talking with a fellow looking for work this past week about jobs and he commented that the companies were hiring more people but working them less. He also said there was no chance for advancement in the jobs anymore, at least nothing significant. He wasn't sure why until I mentioned how the healthcare law worked. You could see the light come on.

That makes you look at the jobs numbers in an entirely new light. When the government boasts of 6m jobs created, just where are those jobs and what do they pay? The majority of jobs lost were from the mid-range. The majority of the replacement jobs are from the low-range with lower hours and little advancement opportunity. After all, if you advance someone far enough they have to work more to earn that higher wage and there you go, potentially getting in trouble with the hours worked.

In any event, given Bernanke did not talk about tapering per the Thursday tweet, the market first jumped. Then it dumped. Another jump, another dump, all before lunch. As lunch started in the east, however, stocks found bottom and rallied into the afternoon, matching morning highs. A good old last hour sprint upside took the indices to session highs to close out the week.

SP500 7.03, 0.43%
NASD 27.41, +0.80%
DJ30 35.87, 0.24%
SP400 0.61%
RUTX 0.92%
SOX 0.89%

Friday volume as trade levels fell. The price moves were solid, however, with NASDAQ and SP400 running back up to their trendlines a day after showing doji at that level. Perhaps they do want to run higher along the trendline as in January and February.

The 'taper article' is out.

After hours the Hilsenrath rumor story was released. As with Bernanke's speech and Q&A, it didn't have much new to offer, but the effect of his stories is that he is accorded some status as the Fed's press mouthpiece.

The article states the Fed has mapped out a winding down strategy, one that will preserve flexibility and manage highly unpredictable market expectations. I will tell you why they are so unpredictable: because given all the intervention, the signposts the market used to be able to read and trust are distorted by years of zero interest rates, bond buying, etc. But I digress.

Timing, as always, is the key. After discussing how the Fed plans to reduce bond buying carefully and in halting steps based upon how the job market is doing vis- -vis inflation, the starting point, i.e. when it starts, is STILL BEING DEBATED. In other words nothing will be coming from the Fed anytime soon.


Reaction to tapering as other central banks ease more.

How will markets react? US futures fell after the news hit. It is official now apparently, even though various Fed officials gave interviews that discussed the need to taper sooner than later. Still, there is the old theory versus reality. Theory means nothing; reality is what you pay for.

It could be the Fed feels things are about to get out of control, perhaps not in the US but the rest of the world.

The ECB cut rates. Australia cut rates. Japan is in a whole separate league of monetary policy with $75B in bond buys per month and a bond market that has come uncorked.

South Korea pulled a surprise cut.

Vietnam cut rates Friday late. Poland cut rates.

New Zealand intervened in its currency market to devalue. Chile said it may intervene as well.

The US bond market, while not bouncing off the walls, just sold back sharply this week, pulling a round trip and more from the past two weeks where bonds surged back up. The LAST THING the Fed wants to see is a US bond market getting away from it with rates rushing to the upside and the Fed unable to rein them in.

If stock investors get a sense the Fed is worried about losing grasp of bond yields, the rally starts giving back gains. It is, as shown on Thursday, still just a liquidity driven market.


OTHER MARKETS

Dollar stronger again: 1.2977 versus 1.3033 versus 1.3156. A significant and rapid decline.

Bonds sharply weaker: 1.89% versus 1.81%: 1.76%: 1.78%: 1.76%: 1.74%; 1.63%; 1.63%; 1.67%; 1.67%; 1.67%; 1.72%; 1.69%; 1.70%; 1.69%; 1.71%; 1.69%; 1.70:; 1.72%; 1.69%; 1.72%; 1.79%; 1.81% 10 year Treasury. 1.81% vs 1.76%

A round trip and more on bonds as they sell off in the currency war turmoil.

Oil off: 96.04, -0.35

Gold crushed: 1436.60, -32.00


US Stock ownership at another record low.

US stock ownership at its lowest rate since 1998. At 52% ownership is the lowest since the Gallup poll began in 1998, 1% lower than last year's 53%. In 2007 just before the crash, 65% owned stocks.

Shockingly to all of those expecting an influx of money from the retail investor, only 17% said they were more likely to invest in the stock market. Money is a factor. With tepid and low quality job creation to replace those jobs lost in the huge collapse, even those working at jobs again do not have the money to invest. No money, no stocks, no 'wealth effect.'



Greece unemployment: New record at 27%. Ages 15 to 24: 64.2%, up 5% month/month. Austerity does not work WHEN the populace does not have the entrepreneurial spirit such as the US. In the US when the government cuts back on spending, stops taking so much in taxes, and reduces regulation, we create new businesses and grow the economy.


Foreclosure filings at a 6 year low in the US (Bloomberg). Yes, but what happens when the mortgage companies end the self-imposed moratorium?


IRS targets groups it doesn't like. Tea Party and Patriot groups were forced to provide voluminous amounts of information, much more than typical, in attempting to gain tax exempt status during the 2012 election. As if the IRS does not stifle economic activity enough in this country, it is prosecuting an ideological vendetta and using unconstitutional power to do so. Oh yes, and thousands of more agents are hitting the streets to enforce the healthcare law.



TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +27.41 points (+0.8%) to close at 3436.58
Volume: 1.673B (-6.9%)

Up Volume: 1.31B (+414.69M)
Down Volume: 370.82M (-537.64M)

A/D and Hi/Lo: Advancers led 1.95 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 203 (+20)
New Lows: 23 (+1)

S&P
Stats: +7.03 points (+0.43%) to close at 1633.7
NYSE Volume: 574M (-7.72%)

A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Decliners led 1.83 to 1

New Highs: 485 (-156)
New Lows: 52 (+1)

DJ-30
Stats: +35.87 points (+0.24%) to close at 15118.49

BREADTH: Very decent on NASDAQ at 1.95:1 but the NYSE fumbled at a mere 3:2.

VOLUME: Down 7% to 8% on the indices as they rallied. Friday.


THE CHARTS

SP500. After the Thursday pause a nice rally to close the week at a new closing high. Lighter trade but it was Friday after a good run. Still room in the range but also still creeping higher above the 200 day SMA where it gets wobbly.


NASDAQ. Came right back from that Thursday tombstone doji at the trendline and put in a higher high, trying to crack the upper channel line. It is attempting, for now, to ride higher along that uptrend line.


DJ30. Taking a back seat but following along nonetheless. As with SP500, still plenty of upside in the channel but also almost 11% above its 200 day SMA.


SP400. Riding up the November trendline, coming right back from the Thursday pullback.


RUTX. Nice break to a new high after a day off Thursday.


SOX. A third solid upside session in a row as SOX breaks free from the November trendline. It is just over 8 points from the prior recovery high post-bear market.


Summary: NASDAQ moved past the doji and looks as if it wants to glide along the upper channel line. SP400 looks as if it wants to do the same along its November trendline. SOX put in a solid week and the NYSE indices are following along well. Good run, most expect a test, but they can just slide higher up the trendline. The reaction to the 'tapering article' will tell more as well.


LEADERSHIP

Some are saying the market is setting up for a new pullback because they see stocks that have rallied well and are ripe. Those stocks may indeed pull back some. But, this market has also shown that when leaders pullback, money goes to new stocks and new leaders. That is the difference between this market and prior runs.

Perhaps it does top out. One fellow is saying PCLN is in a double top. I say it is breakout from a cup with handle base. I am not smart enough to know if it has topped but I will know when I can play it again and make money. Right now I feel that will be an upside play.

AAPL is in a good pullback. STX is testing a breakout. AMCC is in great position to continue higher.

As long as this market produces stocks in great position to run and then they break higher, the rally continues. When investors fear liquidity is leaving, they will sell. That may happen this week. It may happen in a month. We just need to play good stocks when they set up and then if things change, we protect our money, sell out when needed, and then play the other side if it develops.



THE MARKET

SENTIMENT INDICATORS

VIX: 12.59; -0.54
VXN: 14.34; -0.15
VXO: 11.63; -0.77

Put/Call Ratio (CBOE): 0.75; -0.25


Bulls versus Bears

Big spike in bears over 50%, pushing those September levels where the stock market struggled and faded into November. Bears higher as well; they are not as sanguine about the gains, indeed even more pessimistic.



Bulls: 52.1% versus 47.9% versus 44.3% versus 47.4% versus 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: 19.8% versus 18.8% versus 19.6% versus 20.6% versus 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

Earnings are on the wane but after a week that saw less economic data, this week there is piling on. Retail sales on Monday, PPI, Production, Capacity, Chicago and Philly PMI, Housing starts, Michigan sentiment. Friday is also expiration (Saturday really, but you cannot trade Saturday).

In addition to the economic data there is a ton of political intrigue and the usual (it seems) geopolitical issues. The IRS targeting conservative groups in one of the worst breaches of authority by an agency that is already unconstitutional in the exercise of its mandate. Republicans are demanding hearings and they should do it. As Juan Williams, a liberal said last night, this is not a party issue but an American one where such a powerful entity is targeting people on their beliefs.

Of course, the Department of Homeland defense is already doing that; if you are in a conservative group you are considered a potential domestic terrorist.

Then there is Benghazi. When the first hints of a cover up appeared I told many readers this was going to be a huge scandal. It has all the earmarks now. Then on Saturday, the White House briefs SOME reporters in private in what was first called 'off the record' but changed (a la the Benghazi attack talking points) to 'deep information' briefing under the requirement that no sources be cited. So, off the record was right. Then a press conference where only certain media is invited. The death of the US as a liberty loving country occurred when the press abdicated its role and decided to not cover news relating to one person and on issues that would potentially damage that person. It could be democrat or republican. When the press starts investigating or reporting, or NOT, based solely on the person, the topic, and its effect on its favorites, liberty is lost. Hello Pravda.

Okay, okay. I digress. But I am mad. We should all be mad this is happening. It damages our institutions. It makes businesses worried. When they are worried they don't spend. That impacts the economy, and stocks pick up on that first. So anyone reading this report should be burning up the phone and the keyboard calling and writing their Congressional reps.

Stocks ended the week refuting any weakness shown earlier. NASDAQ blew past its Thursday doji and SP400 is not recoiling from its trendline. SOX is stellar.

That doesn't mean they won't have pauses or pullbacks, but as seen in January and February, they can rally up their trendlines for a long time. Friday they shows flashes of that.

The question now is whether the 'taper' article has any impact. Stocks tend to overreact to such stories, but when the move is driven totally by liquidity, that is understandable.

If there is weakness things are trickier. The market has met any pullback with buying on the dips. If the market is worried about the Fed tapering, even if it knows it won't happen soon based upon, if you believe it, the Hilsenrath article, investors may decide not to enter on the dip next time.

So, we have been taking gain on the upside as stocks hit logical targets. We have already banked great gain on many positions, but the newer ones are not there yet. Thus we have good stop loss points in place. If there is selling, given the unknown if stocks will come back this time given a possible change in the landscape, it is best to honor those and then if things hold up, buy back in.

There are still MANY stocks in great position to buy. That can, of course, change rapidly if the news is bad enough. Given what the article said, i.e. nothing really new, the market may not view it as anything significantly new. After all, the Fed minutes talked of this kind of taper and the market is hitting new highs yet again.

Thus be logical and reasonable. Keep good stops and be ready to buy in again if stocks sell but then recover. If they don't that is a different story and we will play it. If stocks hold up, we can continue to look for opportunity because, as noted there are still many excellent buy possibilities.


Support and resistance

NASDAQ: Closed at 3436.58

Resistance:
3436 is the upper channel line for the November 2012 to present uptrend

Support:
3401 is the May 2000 closing low
3321 from April 2000
3318 is the November 2012 up trendline
The 50 day EMA at 3271
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
The 2011 up trendline at 3197
3171 is the October intraday high
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
3104-3112 from August and mid-October peaks.
The 200 day SMA at 3110
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
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 1633.70

Resistance:
1662 is the upper trendline in the channel

Support:
1598 is the April 2013 high and former all-time high
The November up trendline at 1592
1576 from October 2007, the prior all-time high
The 50 day EMA at 1570
1556 from July 2007
1539 from June 2007
1531 is the recent high
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
The 200 day SMA at 1471
1466 is the September 2012 closing peak and rally closing high
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 15,118.49

Resistance:
15,360 is the upper channel line for the trend off the November low.

Support:
14,888 is the April peak and prior all-time high
The November up trendline at 14,775
The 50 day EMA at 14,597
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
The 200 day SMA at 13,657
13,653 is the September 2012 high
13,557 to 13,662
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


May 13 - Monday
Retail Sales, April (8:30): -0.3% expected, -0.4% prior
Retail Sales ex-auto, April (8:30): -0.2% expected, -0.4% prior
Business Inventories, March (10:00): 0.3% expected, 0.1% prior

May 14 - Tuesday
Export Prices ex-ag., April (8:30): -0.2% prior
Import Prices ex-oil, April (8:30): -0.2% prior

May 15 - Wednesday
MBA Mortgage Index, 05/11 (7:00): 7.0% prior
PPI, April (8:30): -0.5% expected, -0.6% prior
Core PPI, April (8:30): 0.1% expected, 0.2% prior
Empire Manufacturing, May (8:30): 3.5 expected, 3.1 prior
Net Long-Term TIC Fl, March (9:00): -$17.8B prior
Industrial Production, April (9:15): -0.2% expected, 0.4% prior
Capacity Utilization, April (9:15): 78.3% expected, 78.5% prior
NAHB Housing Market Index, May (10:00): 44 expected, 42 prior
Crude Inventories, 05/11 (10:30): 0.230M prior

May 16 - Thursday
Initial Claims, 05/11 (8:30): 330K expected, 323K prior
Continuing Claims, 05/04 (8:30): 3005K expected, 3005K prior
CPI, April (8:30): -0.2% expected, -0.2% prior
Core CPI, April (8:30): 0.2% expected, 0.1% prior
Housing Starts, April (8:30): 970K expected, 1036K prior
Building Permits, April (8:30): 950K expected, 902K prior
Philadelphia Fed, May (10:00): 2.5 expected, 1.3 prior
Natural Gas Inventor, 05/11 (10:30): 88 bcf prior

May 17 - Friday
Michigan Sentiment, May (9:55): 78.5 expected, 76.4 prior
Leading Indicators, April (10:00): 0.3% expected, -0.1% 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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Sunday, May 05, 2013

Stocks Surge, Growth Leads

MARKET SUMMARY

- Stocks surge, growth leads.
- Part-time, low pay jobs drive the employment increase as the US jobs market restructures to avoid Obamacare costs.
- Rest of the economy more of the same: Factory Orders flop negative, prior gains revised lower; ISM Services misses.
- Market showing leadership, rotation, and that means more gains should follow.

Jobs credited for sending stocks surging to new highs and new rally highs.

Some went as far as saying the jobs report was 'strong.' At 165K it was above expectations lowered by an ADP report that isn't quite as reflective of the BLS data as it desires, but it was not 'strong.' 165K jobs in reality doesn't keep up with the workforce, or at least it shouldn't. The problem with the US, however, is that so many have left the jobs market 165K jobs can drop the unemployment rate. I will talk more about the shortcomings of the jobs report and other data later.

The important takeaway is that ahead of jobs the futures were basically flat. Jobs came out and futures surged. Stocks surged. They surged early, held the gains, and closed out very near session highs.

SP500 16.83, 1.05%
NASD 38.01, 1.14%
DJ30 142.38, 0.96%
SP400 1.27%
RUTX 1.55%
SOX 0.90%

Volume rose on NYSE to average, faded 1% on NASDAQ but still above average. Not a blowout on volume, but then again volume again good enough. Doesn't seem to be hurting the rally, indeed has not hurt the rally.

We used the rally to bank some gain, e.g. SSO, RAX, but frankly with the market flying and growth stocks taking the lead we let a lot of positions just fly to the upside and will see how far they go. We also picked up some upside on stocks such as AMZN and NOW as well as LEDS, though LEDS came back at us. Overall what a session to the upside with FEIC, CAT, KORS, TRIP, V and many of our plays surging on the session. Again, letting them run with this race higher in the uptrend channel.


OTHER MARKETS

Dollar: 1.3118 versus 1.3064 euro. Big move Thursday then a move back down, at least against the euro Friday. European stock markets surged; maybe they are at a bottom now that the ECB has joined in on the 'flood the streets with money' plan of the US and Japan. The dollar was flat against other currencies.


Bonds: 1.74% versus 1.63% versus 1.63% versus 1.67% versus 1.67% versus 1.67% versus 1.72% versus 1.69% versus 1.70% versus 1.69% versus 1.71% versus 1.69% versus 1.70% versus 1.72% versus 1.69% versus 1.72% versus 1.79% versus 1.81% 10 year Treasury.

Okay right back down, gapping lower and tanking to the 50 day EMA. Bonds should sell in a stronger economy. They were selling Friday though how strong an economy is a open to debate. Some debate.


Oil: 95.61, +1.62. Today in an alert we described oil as Mr. Toad's Wild Ride. Oil dove lower to start April, bottomed mid-month at support. Rallied through Monday, then dove two days on inventories at their highest in over 80 years. Then Thursday they surged again and continued the move Friday back toward 100. The oil market is very decisive in its indecision right now.


Gold: 1464.50, -3.10. Rallied further, clearing the 20 day EMA, but could not finish the move, fading to the close. Still below the 20 day, still unable to punch through, but also still holding up, building a lateral shelf it may try to rally from. Yes the US jobs report was heralded as some kind of great news worth 1% gains on the major indices, but the US, Japan, and now Europe are engaged in massive, unprecedented liquidity production in order to . . . create 165K US jobs. Rather low quality, part-time jobs at that. Money well spent?


THE ECONOMY

Jobs beat expectations, show solid revisions. Also, lower workweek, still record low participation, and poor jobs quality.

THE GOOD: The headlines had everyone cheering on the beat and more importantly the revisions.

Nonfarm Payrolls, April (8:30): 165K actual versus 155K expected, 138K prior (revised from 88K). Services added the bulk of the gains, 185K.

Nonfarm Private Payrolls, April (8:30): 176K actual versus 166K expected, 154K prior (revised from 95K)

Unemployment Rate, April (8:30): 7.5% actual versus 7.6% expected, 7.6% prior

March: 138,000 versus 88,000
February: 332,000 versus 268,000 originally reported


THE BAD: The details, ah the details, show the same problems for a supposedly solid jobs report.

Workforce Participation: 63.3%. If it had held steady since 2007 the unemployment rate would be over 11%. MOREOVER, participation for those 55+ is rising. That means ALL the losses in participation have been in younger age groups.

Average Workweek, April (8:30): 34.4 actual versus 34.6 expected, 34.6 prior

U6: 13.9% versus 13.8% March. 223,000 more in April reported working less than they wanted to because they could not find full time work.

Disability: 1.8M citizens on disability, and they historically NEVER return to the job market.

Share of adults with jobs stubbornly lower since recession started:


Employment to population: 58.2% to 58.7% in the 'recovery,' 58.6% in April.

Even though the US is creating new jobs, it is still 10M jobs light and is NO CLOSER to recovering those lost jobs. Example: Construction lost 2M jobs. It has replaced 200K in this recovery. A long way to go indeed.


Where the jobs are: Still poor quality in the jobs created. The most important sectors still lost jobs (25-54) while the 55+ and 20-24 showed the gains.



Those in the prime of their earning capacity are STILL losing jobs while the economy only adds the lower pay hourly wage jobs.

I sound like a broken record as this is something you have heard from me before, but the jobs quality mix is very poor. Whether this is due solely to a weak economy or in combination with the administration policies such as the healthcare Act is an academic debate. I would argue the weak economy is BECAUSE of the polices. The point is, the jobs created are still low end, low pay positions.

We have reported that the majority of jobs lost since 2007 were mid-tier jobs. The majority created since are low-tier hourly wage jobs in the lowest wage range. Fact is fact.



What Does this Mean? A jobs recovery? Hardly.

Strange job movements = strange government policies.

Temporary workers up again: +30.8K. This is typically viewed as a positive, but as I discussed after the March jobs report, we have seen temp hires up for several years now.

Early on the financial reporters heralded this as good news for the jobs market because it would lead to permanent hiring. It is now clear that temporary hiring IS the end result, not a stepping stone to permanent jobs as it used to be.

Indeed, that is why workforce participation has tumbled and did not improve in April even as the jobs market supposedly improved.

Retail gained 29.3K but the workweek fell from 30.3 to 30.0 month/month.
Retail hours worked fell 1% on higher jobs.

This reflects the overall workweek dropping a huge 0.2 to 34.4 from 34.6. Art Cashin noted this and hoped it might be due to companies hiring more people and thus requiring less overtime. But the workweek is still historically low; people are not overworked in that sense. There is something else causing this.

The facts:
1. The economy is slowing but jobs creation increased. Jobs follow the economy so why are they up?

2. Jobless claims are on the downtrend from 488K five weeks ago to 329K as of the last report. Less layoffs occurring and of course that is a good thing for the jobs market.

3. Temporary jobs jumped again. Combined with the fact that most jobs created in the recovery are low-tier jobs, the bulk of the job creation has been lower pay hourly jobs.

4. Even with job creation increasing, the number of hours worked fell and substantially so. But the historical average workweek is not that high, meaning that workers are not being overworked necessitating new hires. More people working but each working less hours.


The Cause:

The Affordable Healthcare Act applies to companies of a certain number of employees and of certain hours worked per week. If your company fits into the parameters you pay for certain insurance or you pay a penalty.

At first many said that companies would just pay the penalty. Company costs, like water, however, seek their lowest level. Have to in order to survive. Thus if there is a way to do neither, they will do it.

The Result:

STRUCTURAL CHANGES ongoing in the US labor force based upon the healthcare law.

What is really happening is indeed there are more hires, but they are working each employee less due to the healthcare law. The increase in jobs is a move by companies to maintain output with more employees each working fewer hours.

In other words, the increased hiring is due to avoiding the costs of the healthcare law. Now that companies finally understand the impacts of the healthcare law they are adjusting accordingly. They are cutting each employee's hours and picking up incremental hires to keep enough people to service customers but not incur additional costs.


As Nancy Pelosi said in likely the most asinine statement ever made by a legislator (okay, one of the top ten), we have to pass it to know what is in it. They did, now we do.



Ironically, perhaps the healthcare law IS increasing the number of jobs as the proponents claimed, but when you don't grow the economy it is a zero sum game: more employees working fewer hours and at lower wages.

Question: After the structural changes are made, what happens with the jobs market then?

It fades. Companies are just getting the mix of employees to hours at the right ratio to avoid additional healthcare costs. Once done, no need for extra hires unless the economy truly recovers.

Shocking fact working against the economy and thus the jobs market: The number of self-employed persons in the US is at a record low. In history. Period. Most job creation comes from the self-employed that start a business, run it, grow it, hire workers, expand, and hire more workers. This economy is crushing the life out of small businesses as I have reported for the past four years.




Services sees employment decline as the BLS reports services added the majority of new jobs.

ISM Services, April (10:00): 53.1 actual versus 54.0 expected, 54.4 prior



How can the BLS report +185K services jobs in April as the ISM Services private survey shows employment declining to 52.0 versus 53.3, indeed, continuing an ongoing decline in employment?


FACTORY ORDERS, or should that be NON-orders?

Factory Orders, March (10:00): -4.0% actual versus -2.5% expected, 1.9% prior (revised from 3.0%)

Largest drop since 8-2012.


A familiar chart of the economic data: trending lower and lower ever since the 2010 recovery peak. Ah, what a recovery we have in progress.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +38.01 points (+1.14%) to close at 3378.63
Volume: 1.716B (-1.27%)

Up Volume: 1.23B (-60M)
Down Volume: 497.87M (+52.05M)

A/D and Hi/Lo: Advancers led 2.76 to 1
Previous Session: Advancers led 3.06 to 1

New Highs: 283 (+159)
New Lows: 21 (-12)

S&P
Stats: +16.83 points (+1.05%) to close at 1614.42
NYSE Volume: 645M (+5.56%)

A/D and Hi/Lo: Advancers led 2.63 to 1
Previous Session: Advancers led 3.01 to 1

New Highs: 948 (+285)
New Lows: 78 (-2)

DJ-30
Stats: +142.38 points (+0.96%) to close at 14973.96

BREADTH: Another solid day even if it was lower than Thursday. 2.75:1 is not bad.

VOLUME: Slightly lower on NASDAQ but still above average; not bad trade. NYSE trade stronger by 5.5% and good to see as the small caps enjoyed a run.


THE CHARTS

SP500. Surging into mid-channel range after that Wednesday test of the November trendline. Solidly trending higher now and showing a nice volume increase on the move.


NASDAQ. Gapped just about to its session high, finding itself in unfamiliar territory already near the upper trendline in its old channel. Techs finally joined in the rally this past couple of weeks and the market is flying.


DJ30. Excellent run to mid-channel as the Dow continues a steady though not market leading move at this point. It did its job leading and holding things together earlier. Now it is quieter as some market rotation takes place. Healthy, normal, good.


SP400. Midcaps continued to recover after a midweek test at the 20 day EMA as a check to see if it still had strength. Not bad, posting another new all-time high.


RUTX. Led the market in terms of percentage move and also set a new high, intraday and closing. A short little inverted head and shoulders is breaking out. No issues, looking better, more than just following along.


SOX. Gapped to a doji but not complaining. Over the March 2012 peak, the April 2011 peak, and moving in on the February 2011 post-bear market high at 474.33 (closed at 450.92). Leadership.


LEADERS

Big Names. AAPL, AMZN, GOOG and MSFT helped lead NASDAQ. MMM gained nicely.

Technology. Some good moves but many faded after strong early moves, e.g. RAX, DDD. Working but not all to the upside Friday, at least after the open. CAMP moved well, ADTN not bad. Some remain in position but did not move Friday, e.g. PRKR, LEDS (ran then ran back). That at least means there are still buys out there.

Drugs, biotech. Still working on a recovery. CELG did fine. Some smaller names were decent, e.g. BDSI, ARRY.

Retail. Some good moves again, e.g. TJX, PCLN, NKE, RUE.

Industrial machinery: CAT surging. TEX has a double bottom bounce going. Interesting.

Materials working: MAS, VMC. LPX may provide a bounce.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.85; -0.74
VXN: 14.66; -0.53
VXO: 12.16; -0.73

Put/Call Ratio (CBOE): 0.9; -0.01


Bulls versus Bears

Big spike in bulls though overall still much lower than recent peaks in April that topped 50. Bears fell to the lowest in over a month. Very low on bears, getting closer to toppy levels on bulls but not there yet.



Bulls: 47.9% versus 44.3% versus 47.4% versus 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: 18.8% versus 19.6% versus 20.6% versus 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
Mercifully less economic data this coming week though earnings remain on tap. May has not been all that bad for stocks thus far with an initial down day followed by two upside sessions. Sell in May? It may still end up that way, but the indices right now look solid and are rallying inside their old channels, at least on the larger indices. With that action it is hard to exit just on the notion that last May was weak and this one may follow suit. Lots of 'mays' there.

No, this market has shown two important aspects. More than that, but two that mean a lot to us: leadership, and the willingness to rotate to new leaders. Those are key to a healthy bull market and they are fundamental.

There is also the ability to hold where absolutely necessary and find buyers. That, of course, is the liquidity helping out. Indeed, we still believe liquidity is why this economy is moving at all and of course why the stock market keeps hitting new highs. The money flood from the US ($85B/month), Japan ($75B/month), and now Europe (charging to hold bank deposits) has US markets, Japanese markets, and this past week, European markets, surging. If the economy cannot use the money, the financial markets get it. Man they are getting a lot of it.

So we are going to look for those areas where money appears to be moving to. Industrials, materials, cyclical, technology . . . areas that were ignored have received money and likely receive more. The market moves still have room to run as long as new leadership continues to emerge, and we intend to continue playing that move.



Support and resistance

NASDAQ: Closed at 3378.63

Resistance:
3414 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

Support:
3321 from April 2000
3296 is the November 2012 up trendline
The 50 day EMA at 3240
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
The 2011 up trendline at 3189
3171 is the October intraday high
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
The 200 day SMA at 3098
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
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 1614.42

Resistance:
1650 is the upper trendline in the channel

Support:
1598 is the April 2013 high and former all-time high
The November up trendline at 1580
1576 from October 2007, the prior all-time high
The 50 day EMA at 1557
1556 from July 2007
1539 from June 2007
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 1464
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 14,971.63

Resistance:
14,888 is the April peak and prior all-time high
15,248 is the upper channel line for the trend off the November low.

Support:
The November up trendline at 14,691
The 50 day EMA at 14,493
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
The 200 day SMA at 13,601
13,557 to 13,662
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

May 3 - Friday
Nonfarm Payrolls, April (8:30): 165K actual versus 155K expected, 138K prior (revised from 88K)
Nonfarm Private Payrolls, April (8:30): 176K actual versus 166K expected, 154K prior (revised from 95K)
Unemployment Rate, April (8:30): 7.5% actual versus 7.6% expected, 7.6% prior
Hourly Earnings, April (8:30): 0.2% actual versus 0.2% expected, 0.0% prior
Average Workweek, April (8:30): 34.4 actual versus 34.6 expected, 34.6 prior
Factory Orders, March (10:00): -4.0% actual versus -2.5% expected, 1.9% prior (revised from 3.0%)
ISM Services, April (10:00): 53.1 actual versus 54.0 expected, 54.4 prior

May 7 - Tuesday
Consumer Credit, March (15:00): $16.3B expected, $18.1B prior

May 8 - Wednesday
MBA Mortgage Index, 05/04 (7:00): 1.8% prior
Crude Inventories, 05/04 (10:30): 6.696M prior

May 9 - Thursday
Initial Claims, 05/04 (8:30): 336K expected, 324K prior
Continuing Claims, 04/27 (8:30): 3019K expected, 3019K prior
Wholesale Inventories, March (10:00): 0.3% expected, -0.3% prior
Natural Gas Inventories, 05/04 (10:30): 43 bcf prior

May 10 - Friday
Treasury Budget, April (14:00): +$59.1B 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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