- Jobs report shows some strength as full-time tries to play catch up to part-time, but most of the move comes from the return of government workers and there is still a lot of work to be done.
- Stocks rise on the stronger jobs data as investors perhaps ready to take the training wheels off.
- Where did the new workers go?
- Incomes remain a problem, dropping 0.6%.
- Is growth really strong enough to support these valuations? In Friday's market surge, consumer non-durables, drugs led the move in a defensive shift.
- Growth stocks need to regroup to keep the growth character of the market. With taper coming sometime in the next three months, how the market sectors react this week tells the kind of market we will have.
Jobs beat, report viewed as better, stocks rally anyway, sort of.
When the jobs report beat and actually showed some improvement futures actually rallied. Stocks moved up into the open and at the bell all stocks shot higher. Then the shakeout, the change, the possible alteration of the market's leadership and character as investors factor in the Fed no longer dumping a full $1.02T per year into the market, er, economy. All indices finished positive, but not all were solid.
SP500 20.06, 1.12%
NASDAQ 29.36, 0.73%
DJ30 198.69, 1.26%
Volume lighter: -8% NASDAQ, -5% NYSE
Breadth very credible: 2:1 NASDAQ, 2.5:1 NYSE.
Specifically, all stocks jumped higher at the open, but they all did not advance and some did not even hold the move. This was particularly apparent in growth sectors. NASDAQ gapped but sold and had to recover to keep most of the gain but did not advance at all beyond the gap. AAPL never looked good, finishing off over 1%. Not all growth suffered; small caps looked fine. Semiconductors look solid though they too gapped but could not advance.
On the other hand, personal products/consumer nondurables excelled (CLX, CL, PG) as did drugs. Both are a more defensive flavor, suggesting that with the perceived imminent taper (December at the earliest out to February), money funds are not that certain the economy will be strong enough to push ahead and shifted toward more defensive sectors on the very day they felt a taper was confirmed.
To be fair breadth was solid at 2:1 or better on both exchanges as most stocks gained ground. The difference was in those stocks that rallied through to the close and closed near the highs versus those that gapped and then stalled or even faded to negative. Techs and internets, recent leaders, were widely divergent even in their own sectors.
Still, overall stocks moved higher, and despite some growth areas fading, most stocks were up on the session. Perceived better news, taper seems assured, stocks higher. Perhaps it is the time investors figured taper was not only near, it is here, and they better get used to it.
The real question this week, however, is whether investors, specifically hedge funds, change their buys and allocations based upon the turn to taper. Looked to be the case Friday and this week we will see if that continues or if the leaders of the rallies during the taper are cast aside in favor of slower, more defensive plays that were indeed the Friday leaders.
Jobs report credited with real improvement. There was some, but it was no nirvana.
Non-Farm Payrolls beat with 203K and the unemployment rate fell from 7.3% from 7.0%. Household jobs gained were 818K. With the participation rate rising from 62.8% to 63%, many concluded this report was 'for real,' i.e. showing true improvement based upon the headlines and the internals.
When we looked at the headlines and even below the headlines we at first thought that finally, finally some real improvement was at hand. There was, but it was just a very slight improvement, made to look better after the very ugly October numbers. With more review, it looks more like just another modest uptick month out of many downtick months in an ever so slow recovery.
Some more data points:
Leaving workforce in October: 932,000
Returning to the workforce in November: 818,000
Participation rates: September 63.2%. October 62.8%. November 63.0%.
As with the October jobs report, you have to really look for WHERE the positives are.
Believability: First, what can you believe anymore regarding weekly jobless claims and the jobs report? The manipulation ahead of the 2012 elections throws every unemployment read into question. The jobless claims and the household survey were also both thrown into the twilight zone when the Obama Administration, long before the 2012 election, changed the definition of what was work or looking for work to include parent/teacher conferences, reading the want ads, etc. Remember how claims tumbled as a result along with the unemployment rate? If the facts don't fit your view of what reality should be, change the definition of the facts. Beat solving the problem.
Second, while the BLS reported 818K new household jobs were reported (largest in 30 years yet still lower than month's huge 932K decline), many overlooked the surge as a result of the 365K furloughed federal workers thanks to the shutdown returning to work. Also, the participation rate moved to 63.2% from 62.8%.
What doesn't seem right? The strange irony of this is how it impacted the numbers in October and November. In October the 365K federal workers were not counted in the household survey (932K leaving the workforce) and the participation rate fell from 63.2% to 62.8%; the unemployment rate rose one-tenth to 7.3%. In November, just 338K government workers were said to have returned, 818K found work (this included those 338K government workers) and the participation rate fell well shy of its September level by two-tenths. YET, the unemployment rate plummeted to 7.0%.
How do you get such a dramatic plunge in the unemployment rate when total jobs gains was less than the prior month and participation rose but was still below the September level by as much as was recovered? It does not add up. Believability.
I suppose it is good that it is not heading lower the past four months, but NOTE that year/year earnings FELL to 2.0% from 2.2%. Is this good??
Heralded by Marc Zandi as a great improvement, the one-tenth tick higher is basically where the workweek has been for months and months and months. It is no improvement, just month to month noise in a stagnant trend.
The continued Part-Time effect:
Friday many went out of their way to tout the numbers as somehow disproving that there is a part-time bias in the US economy.
Full-time jobs: +652K November versus -623K in October
Part-time jobs: +174K November versus -127K in October
It is true that full-time jobs played some catch up in November. They are still massively below the part-time jobs created in this economic recovery:
The 'recovery' in full-time jobs after the collapse is nowhere near the rate or level of prior recoveries, another indication that this big-government, big regulation, increased taxation recovery is the worst on record.
Where the jobs are:
Service: +152K. Down from 183K in October but still the largest of the categories.
Retail: +22K, half of October's 46K.
Leisure/Hospitality: +17K well off the 49K in October but well above September's -1K.
Total: 194K jobs in the lowest paying, part-time areas.
Nobel Prize winner for economics, Dr. Fama on Friday pondered and was puzzled by the US unemployment rate. He is worried there is going to be another worldwide recession and did not view the US numbers as encouraging, saying he was 'not reassured at all' . . . 'The only reason the unemployment rate is 7%, which is high by historical standards in the U.S., is that people gave up looking for jobs.'
Thus Fama discounted the improvement many claimed to see in Friday's jobs numbers.
If you look at the numbers outside of those reported by the BLS, you can see his point. Since November 2012, the US population of eligible workers over 16 years of age (not including those incarcerated and thus out of the workforce) has risen by 2.4 million people. YET, the US labor force is smaller by 25,000 during that same period.
US eligible population for workforce 11/12 to 11/13: +2.4M
US Workforce 11/12: 155,319. 11/13: 155294
Summary: One month doesn't make a trend. Non-farm payrolls were only remarkable because they were supposed to be so bad. Indeed, they were LESS than the October original read of 204K!
Participation: At 63.0% it only recovered half of where it was in September before the October plunge. Participation for the past two months still heading lower and the trend continues lower REGARDLESS of what November showed.
Full-time versus Part-time jobs: The mix improved in October, but 1) full-time jobs have not snapped back and the recovery is the slowest I have ever seen in reviewing data going back to the Great Depression; and 2) at the pace of recovery even in this more recent 'improved' environment as the pundits style it, it will take 7 years to get back to what are considered normal, non-bubble levels.
A major turn in the employment market? Hardly. AT BEST this was a stemming of the losses, exacerbated by a snap-back from the government shutdown that furloughed over 300K federal workers.
It is not a case, as some made it out to be, of 'how good would it have been if there was no shutdown?' Just look at the 'snap back' numbers: Participation was still LOWER than in September. Jobs creation was less than August and is still struggling.
What was November? It was another month in a slow, stumbling recovery that from time to time sees better months after weaker months, the aggregate being a poor, slow recovery as the full-time jobs recovery graph showed.
As discussed on Thursday and the minimum wage argument, the PROBLEM is not being fixed: the economy is not creating enough quality jobs to satisfy the population. The problem to the problem: there won't be any change in the Administration's policies because it 1) won't change its policies as it believes it can do it where other socialists in the past could not, and 2) it believes it is right regardless of results. Again, the problem won't be fixed as they chase symptoms not the root issues unlike the hero in 'Disclosure.'
So, you are a research assistant for Professor Arthur Friend? A friend?
Michael Douglas post-crisis after 'fixing the problem' in the 1994 tech movie 'Disclosure'.
Dollar: 1.3704 versus 1.3671 versus 1.3589 versus 1.3593 versus 1.3538 versus 1.3592 euro. Lower again versus the euro but managed a modest bounce versus other currencies. You have to again ask: why would the dollar fall if taper is coming? Not making sense unless the economic data is not that strong as the talking heads Friday would have you believe.
Bonds: 2.875% versus 2.875% versus 2.83% versus 2.78% versus 2.78% 10 year. Bonds overall rebounded toward the long end but the 10 year did not recover 2.85%. Still at support and in position to bounce, but why should it if the Fed is going to end the taper and thus stop buying so many bonds?
Oil: 97.70, +0.32. Still hanging at the 50 day EMA after a solid move higher on the week. Still some key resistance.
Gold: 1229.10, -2.80. Another doji at support and still looking as if gold wants to bounce off this support. Why would it bounce higher if the Fed is going to taper and thus protect the dollar somewhat from dilution.
MARKET INTERNALS and STATS
Stats: +29.36 points (+0.73%) to close at 4062.52
Volume: 1.71B (-8.06%)
A/D and Hi/Lo: Advancers led 2.09 to 1
Previous Session: Decliners led 1.18 to 1
New Highs: 178 (+88)
New Lows: 27 (-9)
Stats: +20.06 points (+1.12%) to close at 1805.09
NYSE Volume: 575M (-5.27%)
A/D and Hi/Lo: Advancers led 2.54 to 1
Previous Session: Decliners led 1.95 to 1
New Highs: 147 (+85)
New Lows: 129 (-19)
Stats: +198.69 points (+1.26%) to close at 16020.2
Could be a change in progress as NASDAQ showed less strength than the large cap NYSE indices and more defensive issues such as personal products. That makes this coming week very interesting to see where the big funds chase performance.
NASDAQ: Gapped upside, faded, mounted a recovery, closed lower than the open. That still put NASDAQ at a new post-bear market closing high. Great to see a new high, but it was not an incredibly strong session, not nearly what you would expect or want based upon the purportedly good news and the green all the way around the market.
RUTX: after compressing at the 20 day EMA Tuesday to Thursday with doji, the small caps showed a credible bounce Friday. Credible, solid, but not leadership with a three-quarter percent gain versus 1% gains on the large caps. Up, but a growth area that is following now versus leading.
SOX: Impressive gap to a new post-bear market high. Held it. That is all. Used up all its ammo on the gap upside. Much of the move was thanks to INTC and an upgrade. If the chips lead, things look good for the market.
SP500: Jumped off the 20 day EMA test set up with the weekly decline (first in 7 weeks).
Aided by the consumer staples and non-durables along with some industrials. Financials didn't help and energy was mixed.
DJ30: Same as SP500, bouncing off the test the prior four sessions of the week. Solid, but lower volume on the Dow as was the case on SP500.
SP400: Midcaps gapped back through the 20 day EMA and moved back up toward the top of the range. No deeper test thus far after the touch of the upper channel line, showing tenacity.
Perhaps the start of some rotation out of some growth areas and into staples, consumer products, and some industrials as fund managers confront the reality of a taper and what it may mean to the economy and the market.
Consumer: CLX, CL, PG
Electronics look quite interesting: AFOP, HOLI, MONT, AEIS, ALTI, SIMO.
Internet, Net retail: Some questionable, some solid. WWWW still looks good, YNDX is problematic as is TRIP. PCLN solid, NFLX still trending higher.
Medical: CELG gapped higher, ZMH hit a new high, JNJ posted a good move.
Construction solid: GVA, FWLT.
Energy weak: NOG, XEC, HAL.
VIX: 13.79; -1.29
VXN: 14.85; -1.26
VXO: 12.74; -1.5
Put/Call Ratio (CBOE): 0.87; +0.1
Bulls and Bears:
Bulls are up over 57%, bears fell a tick to 14.3%. Kind of, kind of extreme as you would say. This kind of divergence typically leads to corrections . . . at some point. It is not an exact timing device.
Bulls: 57.1 versus 55.7 versus 53.6 versus 52.6 versus 55.2% versus 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Getting somewhat extreme.
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
Bears: 14.3 versus 14.4 versus 15.5 versus 15.5% versus 15.6% versus 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. After holding steady at the 15.5ish level for three weeks the downward push resumed. Still a very low level.
Background: 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.
Jobs report and a ton of data is out of the way. Now the market can do what it wants into Christmas and New Year's. Of course it has to factor in the new view of imminent taper and what sectors it wants to push into year end. Some appeared to chase lagging areas Friday, but they will also want what they consider 'good' names in the year end statements, names that have performed all year. Thus we ultimately expect to see buys of those leaders that moved the market to where it is now regardless of CLX', CL's, etc. performance on Friday.
Still, for Monday we have a series of electronics plays and we also have several drug plays from last week we are watching. A good mix to hit what works as the Holiday/Christmas rally tries to continue after the Friday post-jobs report renewal. Pretty basic at this point until the market shows otherwise.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4062.52
4069.70 is the post-bear market high.
Next major resistance is around 4100 as NASDAQ hits 13 year highs
The 10 day EMA at 4027
3995 is the upper channel line for the November 2012 to present uptrend.
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
The 50 day EMA at 3914
3877 is the November 2012 trendline
3855 is the November low
3819 is the early October high
3801 is the September 2013 high.
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
The 200 day SMA at 3568
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3495
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high
S&P 500: Closed at 1805.09
The 20 day EMA at 1789
1813.55 is the November 2013 peak
1775.22 is the October prior all-time high
The 50 day EMA at 1759
1730 is the September 2013 peak
1727 is the December 2012 up trendline
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
The 200 day SMA at 1657
1654 is the June 2013 peak
1627 is the August 2013 low
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
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
Dow: Closed at 16,020.20
16,175 is the November all-time high
15,798 the November 2013 high
15,696 is the September 2013 peak
The 50 day EMA at 15,689
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
15,318 is the June closing high
The 200 day SMA at 15,143
15,050 from the August 2013 interim recovery high
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
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
December 6 - Friday
Nonfarm Payrolls, November (8:30): 203K actual versus 188K expected, 200K prior (revised from 204K)
Nonfarm Private Payrolls, November (8:30): 196K actual versus 200K expected, 214K prior (revised from 212K)
Unemployment Rate, November (8:30): 7.0% actual versus 7.2% expected, 7.3% prior
Hourly Earnings, November (8:30): 0.2% actual versus 0.2% expected, 0.1% prior
Average Workweek, November (8:30): 34.5 actual versus 34.5 expected, 34.4 prior
Personal Income, October (8:30): -0.1% actual versus 0.3% expected, 0.5% prior
Personal Spending, October (8:30): 0.3% actual versus 0.3% expected, 0.2% prior
PCE Prices - Core, October (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Michigan Sentiment, December (9:55): 82.5 actual versus 75.1 expected, 75.1 prior
Consumer Credit, October (15:00): $18.2B actual versus $15.8B expected, $16.3B prior (revised from $13.7B)
December 10 - Tuesday
Wholesale Inventories, October (10:00): 0.3% expected, 0.4% prior
JOLTS - Job Openings, October (10:00): 3.913M prior
December 11 - Wednesday
MBA Mortgage Index, 12/07 (7:00): -12.8% prior
MBA Mortgage Purchases, 12/07 (7:00): -12.8% prior
Crude Inventories, 12/07 (10:30): -5.585M prior
Treasury Budget, November (14:00): -$172.1B prior
December 12 - Thursday
Initial Claims, 12/07 (8:30): 315K expected, 298K prior
Continuing Claims, 11/30 (8:30): 2750K expected, 2744K prior
Retail Sales, November (8:30): 0.6% expected, 0.4% prior
Retail Sales ex-auto, November (8:30): 0.3% expected, 0.2% prior
Export Prices ex-ag., November (8:30): -0.4% prior
Import Prices ex-oil, November (8:30): 0.0% prior
Business Inventories, October (10:00): 0.3% expected, 0.6% prior
Natural Gas Inventories, 12/07 (10:30)
December 13 - Friday
PPI, November (8:30): -0.1% expected, -0.2% prior
Core PPI, November (8:30): 0.1% expected, 0.2% 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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