- Jobs report clinker, but apparently enough for stocks to rally.
- More of the same on the jobs report: disappointing, stagnant, but we are told not to worry about jobs.
- Funds drain from various equity vehicles, seek bonds.
- Indices move back up through cracked support, some don't, but didn't flinch, much, at jobs.
- Stocks show surprising upside strength, setting up an interesting inflection next week.
Friday was setting up for a more traditional look at economic data: good would be good, bad would be bad. The problem: the jobs report was just malaise. Non-farms missed but participation recovered from the lows though remained in its slow trend lower. Less people were long-term unemployed, but still way too many are unemployed.
Thus when the news came out the market was not quite sure how to take it. A dive on the news (indeed just ahead of it as early leaks emerged) was quickly reversed.
In a week that saw no other than the venerable CBO pronounce that the Affordable Care Act was indeed negatively impacting jobs and would continue to negatively impact jobs, it should be no surprise that the January jobs report was a disappointment, even with the extension granted by fiat of the Executive. Plenty of evidence already existed that companies were altering their hiring habits, extension or no, as the part-time jobs creation versus full-time jobs shows, but it takes the 'nonpartisan CBO' to get on board before some will even begin to warm to an idea.
Nonetheless, the administration's jobs lap dog Bureau of Labor Statistics is still in denial, blaming poor job performance on the weather in January. It was interesting to note that December's horrid result was not blamed on the weather. Go figure. In any event, the 'weather made me do it' asterisk on the January 113K miss was quite a bit more interesting given that in January, another month marked by ice storms and people stranded on freeways, construction jobs ROSE 48,000. It is ironic, if not appropriate then, that government jobs FELL 29,000. Despite rain, sleet, snow or cold of winter, construction workers did their job while government workers took time off. The old adage appears still true today, but things are different in one way: now government workers, particularly federal workers under this Administration, are paid MORE than their average private counterpart. Puts a whole new meaning on the phrase good enough for government work.
As you know, the jobs report was a miss on the non-farms payrolls.
Provided by Briefing.Com
For about 1 minute, stocks acted as you would expect on bad news. Dow futures were up 40 points heading into the number and within minutes, indeed even BEFORE the number was officially released, they plummeted, swinging 80 points to -40.
Then as quickly as they left, bids returned and futures not only returned to +40 but they improved upon that into the open. They opened higher, tested in the first hour, then continued to show strength into the afternoon and into the close, holding the session's gains without flinching late in the day.
SP500 23.59, 1.33%
NASDAQ 68.74, 1.69%
DJ30 165.55, 1.06%
SP400 1.05%
RUTX 1.14%
SOX 1.64%
Volume: Finally moved up on an upside session, +2% NYSE, +7% NASDAQ. That moved NYSE just a bit above average once more, an popped NASDAQ back above average. Still, the volume is relatively notably lighter than the recent volume, particularly the upside volume.
A/D: solid 3.4:1 NYSE, 2.3:1 NASDAQ.
Why did stocks rally on a non-farms miss? Damn good question.
It wasn't wages, at least from a worker's perspective. If you are not one of the 100+M that do not have a job, your wages are not instilling any confidence. Wages were low last year at 1.9% for all of 2013, just 0.4% when inflation adjusted. That is lower than 2012 and half the average gains for the 20 years preceding the ongoing recession.
It was postulated that a stronger participation rate coupled with a lower unemployment rate (6.6%) 'proved' the jobs market was improving. The participation rate did improve and it was lauded as a great breakthrough.
Really? The recent series:
63.0% January
62.8% December
63.0% November
62.8% October
Great improvement indeed. Hey, it's better than falling to another record low, but it is not a turn.
Long-term unemployment fell by 232K to only 3.6M people. Average jobless duration (how long you are out of a job) fell to 35.4 weeks (just under the time it takes to have a baby). That is the lowest in a year but well, well above pre-recession levels. This after 5+ years of recovery in a 'fundamentally' changed America. Fundamentally changed? I'll agree with that.
Last of all, it was the old standby, 'it was the weather.' Major ice storms hit in December, January, and now February. Easy to pick on the weather. Once again, history gets in the way of any claims made by the federal government. Those classified as 'out of work due to weather' came in at 262,000. Seems high, but historically it is nothing. Higher levels were recorded in . . . 2008, 2009, over 1,000,000 in early 2010, 900K in early 2011, and almost 400K in late 2012. The weather? Really? As noted earlier, it apparently only impacted the government workers.
Commentator statements sum up yet another weak-kneed jobs report: "On an absolute kind of real-economy basis, this does confirm there's probably some degree of slowness out there, but I don't think it's catastrophic." 'Probably some degree'? Another from BNP Paribas's former Fed economist: "It's another disappointment, but it's not anything disastrous . . . There isn't . . . momentum in hiring." That is about as firm as anyone could be given the divergences in the report. Fortunately we learned, thanks to CNBC's Steve Leisman in his analysis of the report, 'jobs are not critical for growth.' Now THAT is a new normal, smacking of the notion that the ACA allows people to pursue their passion . . . without having to work.
THE MARKET
OTHER MARKETS
Euro/Dollar: Falling versus the euro on weaker jobs and the ECB holding everything steady on Thursday.
1.3633 versus 1.3588 versus 1.3537 versus 1.3514 versus 1.3529 versus 1.3496 versus 1.3551 versus 1.3655 versus 1.3667 versus 1.3671 versus 1.3676 versus 1.3695 versus 1.3545 versus 1.3562 versus 1.3528 versus 1.3612 versus 1.3605 versus 1.3683 versus 1.3669.
Dollar/Yen: Dollar climbed again versus the yen in a bounce, albeit modest, on the week.
102.33 versus 102.10 versus 101.37 versus 101.62 versus 101.37 versus 101.40 versus 102.30 versus 102.72 versus 102.11 versus 102.89 versus 102.64.
Bonds: Surged on the initial jobs news with the 10 year yield falling to 2.63%. Faded off of that surge to a more modest gain by the close.
2.68% versus 2.70% versus 2.67% versus 2.62% versus 2.60% versus 2.67% versus 2.70% versus 2.68% versus 2.75% versus 2.76% versus 2.73% versus 2.77% versus 2.86% versus 2.83% versus 2.83% versus 2.84% versus 2.88% versus 2.87% versus 2.83% versus 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.
Oil: 99.87, +2.03. Even with a stronger dollar oil surged on the week, breaking the 200 day SMA for the first time since December when it broke then folded. Moving off a double bottom now and that is a stronger pattern. Prepare for higher prices in the 105 range.
Gold: 1262.90, +6.10. Muddled laterally all week, but holding its move over the 50 day EMA.
MARKET STATISTICS
NASDAQ
Stats: +68.74 points (+1.69%) to close at 4125.86
Volume: 2.041B (+6.86%)
Up Volume: 1.7B (+240M)
Down Volume: 306.62M (-148.82M)
A/D and Hi/Lo: Advancers led 2.33 to 1
Previous Session: Advancers led 1.87 to 1
New Highs: 57 (+17)
New Lows: 36 (0)
S&P
Stats: +23.59 points (+1.33%) to close at 1797.02
NYSE Volume: 671M (+1.82%)
A/D and Hi/Lo: Advancers led 3.42 to 1
Previous Session: Advancers led 3.02 to 1
New Highs: 81 (+30)
New Lows: 72 (-21)
DJ30
Stats: +165.55 points (+1.06%) to close at 15794.08
THE CHARTS
NASDAQ: Gapped through the November 2012 trenldine and the 50 day EMA Friday, closing out at session highs. Higher but not blowout volume. Hard to argue with this action. AAPL revealed a big share buyback that has been underway, GOOG jumped toward its high, and PCLN blasted off. Plenty of help from big names as NASDAQ moves through the early December peak. Again, hard to argue with this upside recovery that looks more like a recovery now versus a relief bounce.
SP500: Through the November 2012 trendline and closing at the 50 day EMA. Key week for SP500 because it is approaching the December highs that represent a potential left shoulder to a head and shoulders. 1805 to 1815 is an important resistance range to watch.
DJ30: Broke back above the 200 day SMA Thursday after cracking it, added to the move Friday. At some resistance from the December low, but more important is at 16K to 16,200.
SOX: Moved through the 50 day EMA on Thursday and then through one of the 2012 trendlines on Friday. Nice recovery after a three day breach of the 50 day EMA.
SP400: Through the 11/2012 trendline heading to important resistance at 1315 (closed at 1308). Important week today.
RUTX: The small caps continue lagging, just now making the 10 day EMA and still well below the 11/2012 trendline thanks to that Monday flop lower. Hole in the boat. We entered some TWM calls (inverse of RUTX) Friday as they tested the 10 day EMA.
RUTX represents a potential anchor chain on the rest of the market, but the other indices showed more strength. SP500 and SP400 are at important levels for the coming week, however.
LEADERSHIP
Some rotation back into bigger names as the market recovered off the lows. That left some of the January leaders flat. Some. There are still solid leaders in biotech, healthcare, as well as electronics, tech, internet.
Big Names: NFLX surged Friday after its breakaway gap test. PCLN gapped back through its 50 day EMA with a strong upside move. CMG gapped higher a week back, worked laterally, and looks good to continue.
Biotechs, Drugs: Good and bad. BIIB is strong. GILD tested after earnings but looks good again. Some smaller still look great: PETX, KERX, CLVS.
Internet: QIHU, LIVE, Z
SENTIMENT INDICATORS
VIX: 15.29; -1.94
VXN: 16.71; -2.77
VXO: 14.05; -2.5
Put/Call Ratio (CBOE): 0.82; -0.1
Bulls and Bears:
Bulls fade to 45.9, a 7.2 point drop. Finally coming off that extreme 60+ reading from January.
Bears finally break higher to 17.4, clearing the 15.3 resistance.
Theory: 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: 45.9% versus 53.1% versus 57.6 versus 56.1 versus 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: 17.4% versus 15.3% versus 15.1 versus 15.3% versus 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%.
Finally breaking 15 and in a big way.
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
Friday's reaction to a lackluster jobs report but one that was not imploding suggests there is more bid strength in the market than revealed itself on the initial bounce from the selloff. That is a positive and it saw NASDAQ and SOX clear two levels of important resistance, SP500 retake the 2012 trendline along with SP400. DJ30 and particularly RUTX still have serious work ahead.
More than that, SP500 needs to clear the December interim high at 1810ish, another 13 or so points. That makes this week, even with the Thursday and Friday rally, the inflection point that tells whether the selling is done and a new leg is on that will push toward a new high.
We did pick up some upside positions on the bounce, stocks showing excellent patterns and that held support/patterns/trendlines on the selling. We are more than happy to play them upside as the rally continues. At the same time we have some downside positions and are looking at some more this week if the market move stalls and reverses. Indeed we picked up some TWM RUTX inverse calls on Friday as RUTX tests the 10 day EMA in a bear flag. A good hedge if things start next week ugly or if the move suddenly runs out of gas early week.
The rebound was better than expected, and that is just fine, but remain skeptical and stick to good patterns that held during the selling. That is precisely what we are doing, and if they continue to show solid bids then we will continue to add them. Keep in mind those key levels on SP500 as the week progresses as your bigger picture view. If the market hits those levels and stalls, we can bank some upside and be ready for the downside if the stall turns into a reversal downside.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4125.86
Resistance:
4161 is the upper channel line for the November 2012 to present uptrend.
4246.55 is the January 2014 peak
Support:
4104 is the lower gap point from 12/20/13
The 50 day EMA at 4079
4070 is the series of highs from late November/early December
4058 is the November 2012 trendline
3991 is the prior November 2013 high and the post-bear market high.
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 200 day SMA at 3755
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
S&P 500: Closed at 1797.02
Resistance:
The 50 day EMA at 1797
1808 is the November and December 2013 twin peaks
1849.44 is the recent all-time high.
Support:
1775.22 is the October prior all-time high
1785 is the December 2012 up trendline
1768 is the December 3013 low
1730 is the September 2013 peak
The 200 day SMA at 1711
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
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 15,794.08
Resistance:
The 50 day EMA at 15,978
16,009 is a lower trendline off the 11/2012 low
16,175 is the November 2013 peak.
16,257 is the January 2014 low
16,589 is the December 2013 all-time high
Support:
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 15,489
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
February 7 - Friday
Nonfarm Payrolls, January (8:30): 113K actual versus 175K expected, 75K prior (revised from 74K)
Nonfarm Private Payr, January (8:30): 142K actual versus 161K expected, 89K prior (revised from 87K)
Unemployment Rate, January (8:30): 6.6% actual versus 6.7% expected, 6.7% prior
Hourly Earnings, January (8:30): 0.2% actual versus 0.2% expected, 0.0% prior (revised from 0.1%)
Average Workweek, January (8:30): 34.4 actual versus 34.4 expected, 34.4 prior
Consumer Credit, December (15:00): $18.8B actual versus $11.5B expected, $12.4B prior (revised from $12.3B)
February 11 - Tuesday
JOLTS - Job Openings, December (10:00): 4.001M prior
Wholesale Inventories, December (10:00): 0.6% expected, 0.5% prior
February 12 - Wednesday
MBA Mortgage Index, 02/08 (7:00): 0.4% prior
Crude Inventories, 02/08 (10:30): 0.440M prior
Treasury Budget, January (14:00): $2.9B prior
February 13 - Thursday
Initial Claims, 02/08 (8:30): 335K expected, 331K prior
Continuing Claims, 02/01 (8:30): 2975K expected, 2964K prior
Retail Sales, January (8:30): 0.0% expected, 0.2% prior
Retail Sales ex-auto, January (8:30): 0.1% expected, 0.7% prior
Business Inventories, December (10:00): 0.4% expected, 0.4% prior
Natural Gas Inventor, 02/08 (10:30): -262 bcf prior
February 14 - Friday
Export Prices ex-ag., January (8:30): 0.3% prior
Import Prices ex-oil, January (8:30): -0.1% prior
Industrial Productio, January (9:15): 0.3% expected, 0.3% prior
Capacity Utilization, January (9:15): 79.4% expected, 79.2 prior
Mich Sentiment, February (9:55): 80.2 expected, 81.2 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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