Sunday, May 05, 2013

Stocks Surge, Growth Leads


- 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.


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?


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.



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)

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)

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.


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.


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.



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.

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

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

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

1650 is the upper trendline in the channel

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

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.

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

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