Jobs Hit a Clinker

MARKET SUMMARY

- Jobs hit a clinker, knock stocks back a bit, but they recover . . . to basically the same position.
- Record numbers not working, half of jobs are temporary, 2013 produced fewer jobs than 2012. Labor Secretary's response: 'imperative to pass' unemployment extension.
- Leaders (the new ones, not the name brands), are performing very well. There IS a January Effect, Virginia.
- Midcaps trying to lead a break higher from the new year indecision.

To ignore or not to ignore? Jobs are the question.


Richard Burton as the melancholy Dane. Mark Zandi as the melancholy Dem.

200K? 225K? More? All we have heard is how the economy is humming along. Then the weather turned, and in December, apparently the jobs market turned as well, relapsing into old, well maybe not so old, habits.


The weather was immediately blamed by the BLS and anyone on the left side of the voting ballot, as many full time workers were forced into part-time status due to inability to get to work. That almost sounds plausible until you apply logic: because of weather companies decided not to hire someone full time but just part-time. This is not hours worked by employees, these are hires. You seriously decide to hire someone part-time versus full-time because of a storm? Seriously? When you look at the construction sector, a sector that truly would be impacted by the weather, you see a 16K decline, seasonally adjusted. Unadjusted, however, the loss was so huge (-216K) that you wonder if something else is at work. Let's be generous (and somewhat hopeful) and say it was the weather. Sure, it was the weather.

Weather or not, the headlines are still bad. So bad that Marc Zandi, the Administration's economic apologist in chief, said to ignore the month because it was so out of step with an economy that, in his words (and he repeated them several times), has turned the corner. Could it be that it was also massively out of step with ADP's jobs survey, the one he helped revamp so it would track the BLS data more closely? Hmmm. But then again, with the BLS known to make up data ahead of important events, say the 2012 elections when it pushed the unemployment rate lower because it wanted to, does the BLS report have any credibility left? Okay, I will say it: no, it does not. But it certainly is interesting in its details.

Even with the headlines blaring anemic job creation, the details are worse.

The 74K jobs created was the smallest in 3 years.

The 6.7% unemployment rate understates the real rate by 380 basis (11.5%) points when you compare apples to apples using simply the average participation rate.

Participation rate: 62.8% versus 63.0%. The lowest since 2/1978.

Jobs Quality: 55% (40K) were part-time, 34K full-time. Temporary, retail, and wholesale trade jobs totaled 111K. Do the math. All other sectors sported a net loss of 35K jobs.

Out of workforce: A record 91.8M working age people out of the workforce. 317M people of all ages in the US. Wow.

In 2013 the household survey (unemployment rate) ran roughly one-half of the non-farm jobs report. They have not converged by they typically do converge, confirming one another. That did not happen in 2013, raising questions concerning the veracity of the data.

2013 saw fewer jobs created than 2012.
Non-Farm: 2.193M in 2012 versus 2.186M in 2013
Household Survey: 2.376M in 2012 versus 1.374M in 2013


December versus the year 2013.

You can argue that December should be ignored, an outrider that does not reflect the 'true' economy and a recovery in progress. There are valid reasons for that such as . . . the weather. Even so, if you take the expected reading for number of jobs in December (197K), 2013 produced at best the same number of non-farm jobs as in 2012.

The Fix?

That does not have the feel of an economy on the upswing. Indeed, the Secretary of Labor hit the financial stations midmorning discussing the jobs report issues. Of course he said the outlook was good, the trend was positive . . . throwing out December of course.


Lenin: Communist revolutionary Perez: Appropriately the 'Labor' Secretary
I had to do a double take the first time I saw Secretary Perez. Hard to tell the difference at times in looks and in labor ideas.

As for what needs to be done? 'Get participation up' Perez cited as a key to a jobs recovery. 'That is why,' he said, it is 'so important to pass the [unemployment benefits] extension.'

Really now. Nothing against those who are struggling to find work, but the argument the Administration is now making that paying extended unemployment benefits does not retard employment recovery flies in the face of every study on the subject. The blanket statements the President and the Labor Secretary are making about everyone on unemployment wanting a job right now is also inaccurate. I have personally witnessed people losing a job and not actively seeking employment until benefits were set to run out. These were not high school dropouts but people with bachelor's degrees. It is a mindset that transcends socioeconomic strata.

Back to Perez' statement. How do you get participation rates up, i.e. more people returning to the workforce, by extending benefits for not working? Most certainly many of those people are seeking work and would do whatever it takes to get work, but if you truly want a job and are looking for work, in the final analysis, having unemployment payments or not won't be the deciding factor. It WILL BE THE DECIDING FACTOR for those who could get a job but won't because they can take unemployment, work some odd jobs here and there for cash, and come out just about as good as if they were busting their butt at one of the many service jobs the Administration's policies have 'created or saved' over the past 5 years.

Unfortunately, that is the situation many, many of the 14M unemployed find themselves in. Where is the incentive to actively seek a part-time job (29 hours or less to avoid the ACA) in the service sector that has no upward mobility potential versus collecting some unemployment and working at some cash-basis jobs here and there and coming out with as much disposable income without the aggravation of that menial job? It is a rational economic decision, and as long as we are making that one of the choices it will be taken by many.


The Bobs: 'Looks like you've been missing a lot of work lately.'
Peter: 'Well, I wouldn't exactly say I've been "missing" it, Bob.'
--From 'Office Space'
Maybe here is the solution?


Got to love 'The Far Side.' We NEED some ingenuity.


Jobs are a lagging indicator, so it could be that the turn higher in Q3 and Q4 will show up in employment in Q1 and Q2 2014. That remains to be seen, and hopefully December will simply be an outlier month that truly can be disregarded in a string of gains versus yet another beginning to the end of a false hope bounce.


"Hope is a good thing, maybe the best of things, and no good thing ever dies.'
May we all end up on a beach with white sand and blue water if that is what we want. Wow, talk about hope.

THE ACTION

Futures were sharply higher as the indices looked ready to breakout from the weeklong lateral move. Tuesday the indices jumped higher after a three day test and it looked as if stocks overall were ready to continue the rally. They did move higher, but it was stumbling, not really hitting stride. Some stocks were setting up and breaking higher quite nicely. Others that led the move higher were not performing that well, e.g. AAPL, PCLN, NFLX. Friday early it looked as if that might change.

Then the jobs report hit and futures took a hit. They gave up the gains but managed to recover ahead of the market open. When the bell sounded stocks jumped, then flipped. At least on the large indices. The sold into lunch, but then staged an afternoon recovery to session highs on all but DJ30 and SOX.

Solid recovery in the face of the weaker jobs report and the notion that the Fed under Yellen will, at least for awhile (read another jobs report or two), stick with taper regardless of what happens. It left the indices positive but for DJ30.

SP500 4.24, 0.23%
NASDAQ 18.47, 0.44%
DJ30 -7.71, -0.05%
SP400 0.68%
RUTX 0.53%
SOX 0.42%

Volume: Faded 3% to 4% on the gain so it was not an accumulation day. Given the big indices are still more or less working laterally, lower volume is better. Lower is, of course, relative. NASDAQ trade is still well above average so it was hardly a low volume session. NYSE trade faded but it too was still average. Not a weak volume session nor a weak volume week. Some churn, i.e. high volume turnover? Yes, in the big names. There was also volume, upside volume, in the smaller names that led the move. Money is rotating and rotating smaller THERE is the January effect.

SP400 midcaps managed to break to a higher high, punching through the upper channel line in the long uptrend from November 2012. Breakout from the channel, new high. Not bad. The big cap indices didn't make a breakout, however, not even close. They are still trending higher, but more in lateral moves after the test. Not in bad in shape, just having a hard time hitting on all cylinders again.

It is the big names, the brand name stocks that everyone knows, that are mostly holding the large cap indices back. The smaller cap indices and a gang of less than well known stocks are leading the move right now. Strong, strong moves from biotechs, healthcare, techs, electronics and other stocks are leading the upside. We experienced 5%, 10%, 15% and 20+% moves in single sessions last week on many positions. Incredible.

A stealth, unseen rally beneath the big names that everyone talks about. We fortunately saw many of them setting up at the end of the prior week and on the weekend, got into them, and reaped the reward. Other stocks we had already entered surged on the week as well. To be sure some struggled as money left some sectors, but they were the minority position for us. Not bad. January Effect.


THE MARKET

OTHER MARKETS

Dollar: 1.3665 versus 1.3603 versus 1.3578 versus 1.3616 versus 1.3633 versus 1.3589 versus 1.3666 versus 1.3757 versus 1.3798 versus 1.3749 versus 1.3690 euro.

Faded further off the rally up off the double bottom at interim support. Jobs issues. Still holding the 50 day EMA and likely bounces from there. The taper is still on, right?


Bonds: 2.86% versus 2.97% versus 2.99% versus 2.94% versus 2.96% versus 3.00% versus 2.99% versus 3.03% versus 2.97% versus 3.01% versus 2.99% versus 2.98% 10 year.

Holy crap. Bonds are supposed to be falling and yields rising. After tapping 3.05% almost two weeks back bonds have done nothing but sell in this strong economy. It is a market axiom that bonds are the 'smart money,' and I suppose that applies even in a highly, highly manipulated market such as the one the Fed has its fingers and toes in right now. Despite better PMI numbers (that ECRI says are actually negatively correlated the past two years) and the GDP reports (buoyed by a massive inventory build), bonds rallied, something that occurs as protection, a safe harbor, when economic times are anticipated to worsen. Bonds are up 5 of 7 sessions, reversing sharply after what was apparently a false break to end the year. Gapped upside Friday, through the 50 day EMA and the December peak. Wow.


Oil: 92.72, +1.06. Starting to recover after falling for two weeks same as bonds. Doji Thursday at support, bounce Friday. Not much, maybe just a relief move, but it held the prior low in November and bounced. Potential double bottom.

Gold: 1246.90, +16.30. Broke back through resistance Monday as it continued the bounce, tested Tuesday to Thursday, surged upside Friday. At the 50 day EMA, but that is noteworthy given the 20 day EMA has bashed gold each time it has tested it the past few months.


MARKET STATISTICS

NASDAQ
Stats: +18.47 points (+0.44%) to close at 4174.66
Volume: 2.126B (-3.1%)

Up Volume: 1.24B (+230M)
Down Volume: 883.26M (-296.74M)

A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Decliners led 1.06 to 1

New Highs: 182 (-34)
New Lows: 16 (-4)

S&P
Stats: +4.24 points (+0.23%) to close at 1842.37
NYSE Volume: 603M (-3.98%)

A/D and Hi/Lo: Advancers led 2.5 to 1
Previous Session: Advancers led 1.1 to 1

New Highs: 213 (0)
New Lows: 74 (-12)


DJ30
Stats: -7.71 points (-0.05%) to close at 16437.05


CHARTS

SP400: Breaking to a new high and clearing the upper channel line. It did this in late December and faded. Still not a done deal, but it is trying to avoid a trip down to the 50 day EMA again.

RUTX: Small caps are still edging higher over the 10 day EMA, pushing against the upper channel line. SP400 has managed to avoid, for now, a test back to the 50 day EMA, instead breaking higher. Can RUTX do the same?

NASDAQ: Bumping the late December high hit post bear market. Holding over the 10 day EMA Tuesday to Friday. Very strong volume all week as it tests that prior high. Churning, higher volume turnover, at that prior high. That indicates selling out of NASDAQ stocks, i.e. sellers selling as fast as buyers are buying (thus no new advance), and looking at some of the big names we are all familiar with, they are showing the same action. That opens the door for some more weakness as money leaves some of these stocks. Opens the door; doesn't guarantee it. There is money moving around. It has not left as the index is still holding up. After a pause we will see if the big names get new money.

DJ30: Struggled the most on the week, but the best pattern of the large cap indices as it puts in a very orderly flag over the 10 day EMA with a pair of doji to end the week. Very much in position to break higher.

SOX: Solid week, gapping upside Wednesday, moving off the 20 day EMA and through the 20 day EMA. Touched the last December high and stalled, but electronics look very solid to continue the move. If they do, they can drag NASDAQ with them.


LEADERSHIP

Big Names: Struggled on the week. AAPL broke the 50 day EMA. PCLN tried to bounce from the 50 day EMA but faded back to it. NFLX broke the 50 day and sold. AMZN, GOOG faded to the weekend but are still holding up quite nicely.

Tech: Pretty solid week in many areas. VMW shot higher early. AKAM jumped. SNDK came to life. WDC and STX tested to end the week but are still very solid. MONT surged. YGE surged.

Biotechs, healthcare. Quite the week as many smaller stocks took off. OXBT, STXS, IPCI, PINC, CGIX, NSPS, FONR, GALE, TKMR. Big names as well, e.g. BIIB.

Lawyers, guns, and money. Okay, maybe just guns and ammo. ATK up 8.5% Friday. SWHC surged on the week. RGR rallied to a new high.

Telecom: EGHT enjoyed a nice week. ZHNE surged early.

Internet: Still solid. SFUN surged. OPEN is in great position to surge. TWTR is setting up an ABCD pattern. Just when everyone was ready to bail. That is how this pattern works.

Retail: And of course, retail is still in trouble. FIVE gapped below the 200 day SMA and the December lateral consolidation. BBBY imploded. LB gapped to a big gain for us. SHLD, ZUMZ. TIF reported solid sales, but Friday it gapped higher and reversed lower with a downside engulfing pattern. Not all is carnage, but there are some massive breakdowns.


SENTIMENT INDICATORS

VIX: 12.14; -0.75
VXN: 14.09; -1.01
VXO: 11.06; -0.87

Put/Call Ratio (CBOE): 0.76; +0.04


Bulls and Bears:

Bulls back off a point to 60.6%, bears hold steady at 15.2%.

Still at extremes even with a modest dip in bulls.

When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.




Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 60.6% versus 61.6% versus 60.0 versus 58.2 versus 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 even more extreme . . .

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 15.2% versus 15.2% versus 14.0 versus 14.3 versus 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%. Held steady basically for the third straight week. Seems bears fall after each three weeks. Frankly, how much more can it fall? Further, I suppose.

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.


MONDAY

Earnings. Rehashing FOMC minutes. Earnings. Fed opening door to further easing using ACA as a very real scapegoat. December retail sales. Regional PMI's. Further pondering the jobs report. Earnings.

The events of the week.

Stocks are clear of the FOMC minutes regarding the taper as well as December jobs. But they are not really clear. The FOMC raised the 'valuation' card, worried that smaller cap stocks are becoming stretched in value. Maybe they are not wrong; smaller businesses have not seen the rise in business as the huge multinationals yet the small and midcap indices are hitting new highs. Yes, but valuations always lead actual gains. Of course we are all still waiting for those actual gains to show up in this economy . . .

Jobs? Massively disappointing, but there is the hope it was all the weather. Yes and Philadelphia really won last week and Tony Romo of the Cowboys is a clutch playoffs QB (oh yeah, you have to GET to the playoffs to show that).

Earnings. Thus far a lot of warnings. Thus far either surprising beats or ugly misses. There could be a lot more of that to come.

Then there is the rally itself. What is to keep it going now that the holidays are over and a good holiday rally is in the books? The Fed is tapering, so it has to be up to gold old fashioned anticipation of better economic times, and thus better earnings, ahead.

I am not holding my breath on any of that. As for the patterns, the indices are still trending higher but stumbled along last week after a nice easy first of year test. Volume elevated as they bump along recent highs, showing some churn as stocks run in place on that higher trade. Not very promising there either; not fait accompli, but there are some negative tendencies in that.

What I am looking at most closely is the rise of the smaller caps. Despite the Fed misgivings, a lot of smaller stocks have come onto the scene the past couple of weeks. We picked up on this earlier, then really caught it the past week. Money is rotating to new areas. Not leaving the market as some of the big names turn sluggish and even falter, but finding smaller stocks. As noted, this is the January effect and it was not, at least on any station that we searched, mentioned last week. It is, as noted above, a stealth January effect move.

Thus we will keep looking at those areas for more opportunity as money moves in. Earnings are a concern as is expiration. We have a few January option positions and will be taking gain on those, but if they are moving higher we will take it as late as possible.

With earnings, stocks overall have moved nicely higher. Runs into earnings are not the best time to enter or to ride through. Thus we will look at banking gain ahead of results for positions still near the tops of their runs. Just makes sense to book some gain, particularly on option plays. It also makes sense if they are up but are showing that heavy action that some of the big names displayed last week.

This week continue to watch the big names and whether they continue the sloppy action. Of course watch the smaller names that are moving well to see if more will crop up as money works its way into other areas. If money wants to head their way then we want to take advantage of that once again.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4174.66

Resistance:

Support:
The 20 day EMA at 4120
4104 is the lower gap point from 12/20/13
4082 is the upper channel line for the November 2012 to present uptrend.
4070 is the series of highs from late November/early December
The 50 day EMA at 4036
3991 is the prior November 2013 high and the post-bear market high.
3971 is the November 2012 trendline
3967 is the October 2013 post-bear market high.
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 200 day SMA at 3670


S&P 500: Closed at 1842.37

Resistance:
1849.44 is the recent all-time high.

Support:
The 20 day EMA at 1825
The 50 day EMA at 1798
1775.22 is the October prior all-time high
1756 is the December 2012 up trendline
1730 is the September 2013 peak
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
The 200 day SMA at 1689
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
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


Dow: Closed at 16,436.81

Resistance:

Support:
The 10 day EMA at 16,429
16,175 is the November all-time high.
The 50 day EMA at 16,057
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
The 200 day SMA at 15,362
15,318 is the June closing high
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


Economic Calendar

January 10 - Friday
Nonfarm Payrolls, December (8:30): 74K actual versus 197K expected, 241K prior (revised from 203K)
Nonfarm Private Payr, December (8:30): 87K actual versus 198K expected, 226K prior (revised from 196K)
Unemployment Rate, December (8:30): 6.7% actual versus 7.0% expected, 7.0% prior
Hourly Earnings, December (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
Average Workweek, December (8:30): 34.4 actual versus 34.5 expected, 34.5 prior

January 13 - Monday
Treasury Budget, December (14:00): +$44.0B expected, -$1.2B prior

January 14 - Tuesday
Retail Sales, December (8:30): 0.0% expected, 0.7% prior
Retail Sales ex-auto, December (8:30): 0.4% expected, 0.4% prior
Export Prices ex-ag., December (8:30): 0.1% prior
Import Prices ex-oil, December (8:30): 0.0% prior
Business Inventories, November (10:00): 0.3% expected, 0.7% prior

January 15 - Wednesday
MBA Mortgage Index, 01/11 (7:00): 2.6% prior
PPI, December (8:30): 0.3% expected, -0.1% prior
Core PPI, December (8:30): 0.1% expected, 0.1% prior
Empire Manufacturing, January (8:30): 3.5 expected, 1.0 prior
Crude Inventories, 01/11 (10:30): -2.675M prior

January 16 - Thursday
Initial Claims, 01/11 (8:30): 333K expected, 330K prior
Continuing Claims, 01/04 (8:30): 2835K expected, 2865K prior
CPI, December (8:30): 0.3% expected, 0.0% prior
Core CPI, December (8:30): 0.2% expected, 0.2% prior
Net Long-Term TIC Fl, November (9:00): $35.4B prior
Philadelphia Fed, January (10:00): 8.0 expected, 6.4 prior (revised from 7.0)
NAHB Housing Market , January (10:00): 57 expected, 58 prior
Natural Gas Inventor, 01/11 (10:30): -157 bcf prior

January 17 - Friday
Housing Starts, December (8:30): 986K expected, 1091K prior
Building Permits, December (8:30): 1000K expected, 1007K prior
Industrial Production, December (9:15): 0.3% expected, 1.1% prior
Capacity Utilization, December (9:15): 79.1% expected, 79.0% prior
Michigan Sentiment, January (9:55): 83.0 expected, 82.5 prior
JOLTS - Job Openings, November (10:00): 3.925M prior

By: Jon Johnson, Editor
Copyright 2014 | All Rights Reserved

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

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