It's Earnings Season

MARKET SUMMARY

- Jobs report beats, revisions solid, but futures fell on the news: taper reality.
- ECB states it is ready to continue its policies forever. Futures jump, dollar surges.
- 'No doubt' jobs market is in recovery say some, but a surge in part-time jobs is hardly a victory as the structural jobs change becomes entrenched.
- Dollar surging, Oil surging, Bonds tanking, Gold dives but holds 1200.
- It's earnings season. And all that implies.

Stocks rally, but hard to tell if it was jobs or the ECB.

Lots of excitement about a jobs report that was good on numbers, bad on quality, and ugly on those wanting fulltime work, but not finding it.


The Ugly The Good The Bad

The Good: 195K June jobs. May revised: 195K from 175K. April: 199K from 149K

The Bad: 360K part-time jobs (557K YTD) for 28.059M total, an all-time high. -240K fulltime jobs (just 130K YTD). ONLY 47% OF US CITIZENS HAVE FULL-TIME JOBS!

The Ugly: U6 (underemployed due to economic conditions) 14.3M from 13.8M in May.

Household Survey:

Unemployment: 7.6% versus 7.6% expected versus 7.6% May. Longest stretch of 7.5+% unemployment (54 months) since record keeping started in 1948!
Participation Rate: 63.5% versus 63.4%
Household jobs gained: 160,000.
Manufacturing jobs fell for the fourth straight month. Only +13K YTD
Restaurants and Bars: +51.7K, +239K YTD. 10,339,800 current, an all-time high.

Non-Farms Report Internals:
Restaurants +37K
Leisure and hospitality: +75K
Education, Health, Temporary: +23K
Manufacturing -6K




What does this show? The continued surge in part-time hiring that was ignored until last month's jobs report when the Wall Street Journal and others finally picked up on the argument we made for months, i.e. the jobs quality was bad because companies were hiring to minimize costs ahead of the full implementation of the Affordable Healthcare Act.

I suppose the President will now want to amend the legislation to lower the hours to 25 per week in order to avoid the impacts, but that doesn't matter now that the employer applicability was put off until 2015, once again conveniently avoiding showing just how onerous, unworkable, and expensive the legislation will be until after a national election.

The conclusion: get used to it. Too many regulations on those who would create new companies and new jobs here in the US, so the bulk of jobs created will be at the lower end . . . just as what has transpired the past several months.

ECB has more of an impact on US stocks.

But did jobs make the difference for stocks? It was clear early on that was not the case. Futures were up on the ECB's pronouncement on July 4 that it would maintain its easy policy for a long time to come, scrapping its 'we don't give no stinking guidance' positions. Draghi last year said he would do anything, and he has augmented that to do anything forever.

Futures loved the ECB stance. Futures jumped early. Jobs hit, they dipped. It was not until an hour into the session that they found their footing and rallied, more or less steadily, into the close.

SP500 16.48, 1.02%
NASDAQ 35.71, 1.04%
DJ30 147.29, 0.98%
SP400 1.26%
RUTX 1.44%
SOX 1.35%

Why no jump on the jobs report? Perhaps the headline numbers were too strong for those worrying about a taper. Perhaps stocks saw through the raw numbers and looked at the number of part-time and the number of underemployed seeking fulltime work and figured the taper might be less likely. What IS less likely is those in the latter camp getting what they want. The Fed is going to taper starting in September.

In the end it didn't seem to matter. Stocks rallied, albeit on low volume, with SP500 and other indices clearing some resistance. Not bad ahead of a weekend with plenty of geopolitical intrigue.


CHARTS:

SP500 played with the 50 day SMA all session, breaking it, giving it up, but then breaking above it for good as stocks jumped to session highs in the last 45 minutes of trade. Clearing this type of resistance is always a process, but the move was solid on rising, albeit still low volume (holiday, right?), closing out at session highs.

DJ30 broke its 50 day SMA as well, bouncing off a four day lateral move. Not bad.

NASDAQ gapped, filled the gap and then closed at the session high, just below the November trendline. NASDAQ is through the June gap and looks solid as it continues its two week recovery.

RUTX moved to a new all-time closing high, also filling its gap early and then recovering.

SOX moved through its 2011 peak and is now looking at the mid-June high again.



Leadership

As interest rates rise, there are definite impacts on several sectors.

Internet stocks are still strong: WWWW, GOOG. AWAY remains in good shape to move after a short pullback.

Housing is hit but it is setting up for a relief move: DHI, TOL, PHM

Banks are jumping: JPM broke higher. STT is up and running along with many regional banks.


OTHER MARKETS
Dollar surging even more: 1.2830 versus 1.2976 euro. The dollar index has now cleared the May peak as the ECB commits to forever liquidity and the US posts 'strong' jobs.

Bonds: 2.71% versus 2.50%. Bonds imploded and rates took off. The TLT gapped below the June low. Rates are surging.

Oil continues its run: 103.22, +1.98. Breaking through the top of the old range. US jobs, Egyptian violence worsening (10 dead, over 280 injured, surely more to come).

Gold down hard again: 1212.50, -39.40. After bouncing up to the 10 day EMA, gold rolled over Friday. It held over 1200 and that was noted as a positive. That means little, however, without a bounce off of that level.


MARKETS:

TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +35.71 points (+1.04%) to close at 3479.38
Volume: 1.242B (+32.83%)

Up Volume: 872.11M (+341.85M)
Down Volume: 362.34M (-20.45M)

A/D and Hi/Lo: Advancers led 2.71 to 1
Previous Session: Advancers led 1.27 to 1

New Highs: 310 (+200)
New Lows: 30 (+13)

S&P
Stats: +16.48 points (+1.02%) to close at 1631.89
NYSE Volume: 571M (+18.46%)

A/D and Hi/Lo: Advancers led 1.16 to 1
Previous Session: Decliners led 1.47 to 1

New Highs: 263 (+186)
New Lows: 207 (+92)


DJ30
Stats: +147.29 points (+0.98%) to close at 15135.84



SENTIMENT INDICATORS

VIX: 14.89; -1.31
VXN: 14.91; -0.89
VXO: 14.62; -1.56

Put/Call Ratio (CBOE): 0.97; -0.17


Bulls and Bears:

Well, it looks as if the convergence that was the most since November 2012 is over. Bulls and Bears looked at each other to end June, gave each other the cold shoulder and bounced back. Bulls pretty solid, bears a big decline with a 4.2 point drop. Looks as if they got their upside impetus as the indices bounced right back up. The Fed taper concerns did not make a difference this time around as the prior readings helped bounce the market.



Bulls: 43.8% versus 41.7% versus 46.8% versus 43.8% versus 45.8% versus 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 47.4% versus 50.5%.

Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 20.8% versus 25.0% versus 21.9% versus 22.9% versus 20.8% versus 19.8% versus 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

Back from the holiday and a clearer read on the market's direction. Wednesday and Friday were not bad days as the indices broke higher with some clearing resistance, e.g. SOX, SP500, DJ30. Held the gains off the recovery bounce, and are now attempting to extend them.

The key remains the leadership, and while some interest sensitive negative sectors are getting hit (e.g. housing), many other sectors look quite solid, and it just so happens they still have some good-looking buys in the ready position. We, of course, will be looking at those in the coming week.

To end the week we let most positions run as there were some soaring positions we didn't want to get in front of e.g. WWWW, CLDX, but did take some gain on the SSO as it hit the target; sticking to the plan. Others look ready to break, e.g. NFLX. Again, there are stocks from several sectors that look ready to roll for next week, and if the market continues this upside break as bonds fade, well, we will participate.

That doesn't mean concerns about the Fed killing the rally are gone from my market outlook. I still think the market likely tops given the Fed withdrawing the stimulus that the overall weak economy uses to limp along, but for now the money is still buying stocks, apparently for lack of any other alternatives. As long as that money is pushed into stocks then we will play the leaders as they make their moves.

Of course there is always a rub. That would be earnings season, and all that implies.


Bud: What does your daddy do?
Pamela: Daddy does oil and all that that implies. 'Urban Cowboy' 1980

It is something of an enigma that stocks continue to rise even on relatively poor earnings growth the past two quarters, i.e. bottom line beats on cost adjustments while posting top line misses. From the headlines it appears this season is not expected to be any different.

The question is, how long can stocks rise on the bottom line beats if the realization is the Fed is going to withdraw stimulus and companies fail to post top line beats this quarter? We will see soon enough as the market gets the 'gist' of the season in a couple of weeks.

With earnings that means even with leaders in good technical position, plays may entail the additional earnings risk. We typically try to avoid plays with earnings close, but also recognize that a good pattern can yield a pre-earnings run as well. Thus you don't avoid plays near earnings, you just need a clear understanding as to why you are in the play.



Support and resistance

NASDAQ: Closed at 3479.38

Resistance:
3486 is the November 2012 up trendline
3521 is the August 2000 low.
3532 is the early May high and 2013 high
3578 is the upper channel line for the November 2012 to present uptrend

Support:
The 50 day EMA at 3396
3295 is the June 2013 low selloff
The 2011 up trendline at 3275
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
The 200 day SMA at 3188
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
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



S&P 500: Closed at 1631.89

Resistance:
1654 is the June 2013 peak
The November up trendline at 1675
1687 is the May high and post-bear market high
1762 is the upper trendline in the channel

Support:
The 50 day SMA 1626
The 50 day EMA at 1612
1576 from October 2007, the prior all-time high
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
The 200 day SMA at 1514
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
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 15,135.84

Resistance:
The 50 day SMA at 15,072
The November up trendline at 15,540
15,542 is the May 2013 high

Support:
The 50 day EMA at 14,965
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,551 is the June 2013 intraday low on the selloff
14,198 from the October 2007 high
14,149 is the February 2013 high
The 200 day SMA at 14,035
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
13,784 is the late February 2013 closing low
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
13,413 from the late September 2012 low
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

July 1 - Monday
ISM Index, June (10:00): 50.9 actual versus 50.5 expected, 49.0 prior
Construction Spending, May (10:00): 0.5% actual versus 0.5% expected, 0.1% prior (revised from 0.4%)

July 2 - Tuesday
Factory Orders, May (10:00): 2.1% actual versus 2.0% expected, 1.3% prior (revised from 1.0%)
Auto Sales, June (14:00): 5.3M prior
Truck Sales, June (14:00): 6.8M prior

July 3 - Wednesday
MBA Mortgage Index, 06/29 (7:00): -11.7% actual versus -3.0% prior
Challenger Job Cuts, June (7:30): 4.8% actual versus -41.2% prior
ADP Employment Change, June (8:15): 188K actual versus 150K expected, 134K prior (revised from 135K)
Initial Claims, 06/29 (8:30): 343K actual versus 348K expected, 348K prior (revised from 346K)
Trade Balance, May (8:30): -$40.8B expected, -$40.3B prior
Continuing Claims, 06/15 (8:30): 2933K actual versus 2955K expected, 2987K prior (revised from 2965K)
Trade Balance, May (8:30): -$45.0B actual versus -$40.8B expected, -$40.1B prior (revised from -$40.3B)
ISM Services, June (10:00): 52.2 actual versus 54.0 expected, 53.7 prior
Crude Inventories, 06/29 (10:30): -10.347M actual versus 0.018M prior
Natural Gas Inventories, 06/29 (24:00): 72 bcf actual versus 95 bcf prior
Initial Claims, 06/29 (8:30): 343K actual versus 348K expected, 348K prior (revised from 346K)
Continuing Claims, 06/15 (8:30): 2955K expected, 2965K prior

July 5 - Friday
Initial Claims, 06/29 (8:30): 348K expected, 346K prior
Continuing Claims, 06/15 (8:30): 2955K expected, 2965K prior
Nonfarm Payrolls, June (8:30): 195K actual versus 166K expected, 195K prior (revised from 175K)
Nonfarm Private Payrolls, June (8:30): 202K actual versus 180K expected, 207K prior (revised from 178K)
Unemployment Rate, June (8:30): 7.6% actual versus 7.6% expected, 7.6% prior
Hourly Earnings, June (8:30): 0.4% actual versus 0.2% expected, 0.1% prior (revised from 0.0%)
Average Workweek, June (8:30): 34.5 actual versus 34.5 expected, 34.5 prior


July 8 - Monday
Consumer Credit, May (15:00): $13.2B expected, $11.1B prior

July 10 - Wednesday
MBA Mortgage Index, 07/06 (7:00): -11.7% prior
Wholesale Inventories, May (10:00): 0.3% expected, 0.2% prior
Crude Inventories, 07/06 (10:30): -10.347M prior
FOMC Minutes, 6/19 (14:00)

July 11 - Thursday
Initial Claims, 07/06 (8:30): 345K expected, 343K prior
Continuing Claims, 06/29 (8:30): 2949K expected, 2933K prior
Export Prices ex-agriculture, June (8:30): -0.7% prior
Import Prices ex-oil, June (8:30): -0.3% prior
Natural Gas Inventories, 07/06 (10:30): 72 bcf prior
Treasury Budget, June (14:00): -$59.7B prior

July 12 - Friday
PPI, June (8:30): 0.3% expected, 0.5% prior
Core PPI, June (8:30): 0.1% expected, 0.1% prior
Michigan Sentiment, July Preliminary (9:55): 84.8 expected, 84.1 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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