Sunday, July 06, 2014

Bonds Sold on Jobs Report Headlines


- Jobs report headlines improve, good-news starved analysts gush, stocks like it.
- Bonds sold on the news, but rebounded after digesting the details beyond the headlines.
- Same issues underlay the jobs top line numbers, and they still indicate, unfortunately, a so-so economy.
- A bit extended on this leg but the uptrend is strongly entrenched overall.

Thursday's action was mostly about jobs and the perception of what the Jobs Report means. The numbers were much better than expected in terms of non-farm payrolls and the unemployment rate. Unfortunately it was not a new surge of hiring, but more of what the economy has shown before. Indeed this recovery has shown better itself, but as we know, they were never lasting trends, just blips. Even then, the numbers just have never been that great. They were not that great in June either.

As I said earlier this week, however, this is a market and to a certain extent a society (though much less so now as reality of continuing crappy recovery sinking in) that is only interested in headlines. Leave it to the bond market, even with the massive ongoing Fed intervention, to see the core issues.

Thus, stocks rose again and bonds, after selling initially, rebounded from a 2.69% intraday high read on the 10 year.

SP500 10.82, 0.55%
NASDAQ 28.20, 0.63%
DJ30 92.02, 0.54%
SP400 0.54%
RUTX 0.72%
SOX 0.74%

Volume: Rose on NYSE, faded on NASDAQ, but on a holiday weekend and a half day session, it does not really matter.


Jobs seem to be good, are improving, but the same old structural issues remain, reflecting the problems with the new US economy.

5 months over 200K jobs. The past six months average is 230K.

Unemployment rate: 6.1% versus 6.3% expected, 6.3% May.

Seemingly impressive numbers, but 2 points.

First, they seem impressive only because the numbers have been unimpressive for so long. We are used to mediocrity or worse, and when a fairly decent number is produced we act as if 500K jobs were created (not even saved; created). 288K? Mediocre.

Second, as we know, the numbers just don't tell the story.

Jobs are up, unemployment rate is down. As we all know, this is the same story. Just as corporations are buying back shares to decrease the float to improve earnings per share, the unemployment rate falls because the number of people in the labor pool is lower and lower. Bigger percentage working.

Indeed, 92,120,000 working age people are out of the workforce.

Participation rate holding for the third month at 62.8%, another tie with the all-time low.

Jobs quality:

There is hope this is a change in the jobs market and investment climate. But policies have not changed so why should it? They say time heals all wounds, but time does not change bad policies.

Part-time jobs rose 799K, the most since 1993. Full-time jobs LOST 523K.
We are still losing full-time jobs. This is still part of the Obamacare shift.
For 2014, 926K full-time, 646K part time (70% of full-time jobs, 41% of all jobs created).
Since 2009, low-wage jobs make up 62% of all jobs. That is NOT an economy that is producing the new companies and getting the investment that creates the cutting edge jobs and raises our standard of living.

Wages rose 0.2% or 2.0% year/year. Still 'soft' as Larry Kudlow and others put it. Indeed, this is the same since 2009. Real wages were FLAT for May and June. Indeed, ANNUAL real wages are flat SINCE THE RECOVERY STARTED. No wonder; this comes from the jobs quality issue.

Some say this is great because there is no 'wage-led inflation' present. Well, there NEVER is, but even if there was such a thing, that would be a GOOD thing to worry about, the problems of success. That would mean there are good jobs out there that require good workers and companies were bidding up wages to attract them. The problems of the rich, right? You WANT those problems. We don't have them because the good jobs are showing up on shores other than ours.

Solution: Decrease regulation? Reduce small business costs? Lower taxes? Provide other incentives to invest in new business in the US? No! Allow millions across the border without documentation and raise the minimum wage! Let's become a minimum wage country, not a cutting edge country, and frankly, the jobs make-up for the past several years shows that is EXACTLY what we are (or have) become.

Conclusion: We are recovering. Just slightly. The economy is creating more jobs but the quality remains low, wages remain low, and this won't change without changing policy. In 2010 there was a burst of activity as the monetary policy reached its maximum impact. Then, because the fiscal and regulatory policies did not soften but indeed were ratcheted up as even more unfriendly to investment and risk-taking, the economy slid back to a low level of activity, maintained by the Fed's monetary policy, but unable to improve further thanks to the anti-investment, anti-risk taking policies, indeed anti-growth policies, of the Administration.



Wednesday I discussed some issues with SP400, RUTX, and to some extent NASDAQ, as they showed indications of a near term pullback. Big news Thursday can trump the pattern near term. We were watching to see how the indices handled the news, good or bad. The news was reported as good, stocks took it that way, they rallied. They did not give it back. SP400 didn't turn the pattern but it mitigated downside. RUTX continued upside toward its long-term trendline, better but it too didn't wash away the next resistance.

The large cap indices and SOX continued to push higher, adding gains on top of gains. New highs, new post-bear market highs yet again. The move on this last leg spans 7 sessions. This is the latest leg in the rally that started mid-May, the rally about nothing other than a lot of people were 'nervous'. Enough sold out so the market was sold out after 2.5 months, and voila, rally.

The rally is now just a few weeks short of the nervous correction, getting rather old in itself. Did you notice how the folks on the financial stations, anchors and guests, became cheerier as the week progressed? A resumption of the rally after a short test and they were just about ebullient regarding economic and market prospects.

The Dow hit 17,000. Some are saying 20,000. Some are saying SP500 2300. This rally about nothing bottomed when fears were spiking. The rally likely ends when you see confidence spiking. It might not be there just yet, but with everyone feeling pretty darn good about themselves, it is time to start watching for signs the move is running thin.

There was a bit of volatility two weeks back but stocks pushed it aside and rallied on this last move. Avoided that issue. After this leg the indices look a bit extended as noted, but there is very good leadership in charge, testing, and up and coming. As long as new blood continues to move in and build patterns to follow the current leaders, the uptrend is in good shape. There will be tests just as there have been on the way up. Again, with the current rally at seven weeks, it is time to start watching for the return of volatility, particularly if leaders break trends and no new leaders are coming up to take their place.


Internet, tech, drugs, electronics have all chipped in and contributed to pushing this rally higher. With the notion that the economy may be better off post-jobs report, industrials, transports, financial stocks performed better.

The current leadership is still holding up just fine, but along with volatility we need to watch for rotation into other areas that may leave recent leaders with less backing.

Internet-based: TRIP is in a nice test right at the March high. TRLA is bouncing after a test. Z is bouncing off a 10 day EMA test. Pretty normal action. AKAM is holding over the 10 day EMA but is a bit off in power just below the February and March peaks.

Tech: AAPL still moving up off its test but it has to deal with its early June high. STX is still solid in its advance.

Electronics: AFFX continued its move off the 10 day EMA test. Other leaders that were out in front are not showing they are coming back. CAVM has a worrisome pattern. MXWL slipped below the 50 day EMA and is no position to do much now. Some cracks in some of the leaders.


Euro/Dollar: Surging back up after breaking down last week. Back to the 200 day SMA on the high.

1.3608 versus 1.3658 versus 1.3769 versus 13693 versus 1.3648 versus 1.3612 versus 1.3630 versus 1.3604 versus 1.3603 versus 1.3600 versus 1.3603 versus 1.3592 versus 1.3545 versus 1.3573 versus 1.3539 versus 1.3551 versus 1.3531 versus 1.3545 versus 1.3589 versus 1.3644 versus 1.3664 versus 1.3601 versus 1.3630 versus 1.3597 versus 1.3633 versus 1.3603

Dollar/Yen: Surging again up off the bounce that started Monday.

102.210 versus 101.7595 versus 101.534 versus 101.3150 versus 101.4413 versus 101.722 versus 101.8695 versus 101.9195 versus 101.925 versus 102.059 versus 101.9595 versus 101.9335 versus 102.13 versus 101.955 versus 102.055 versus 101.735 versus 102.0370 versus 102.335 versus 102.5305 versus 102.540 versus 102.415 versus 102.7395 versus 102.5350 versus 102.365 versus 101.7765 versus 101.775

Bonds: Tough week for bonds, and they gapped lower Thursday as well. Jobs sent them lower but they recovered off the lows. Still struggling.

10 year: 2.64% versus 2.62% versus 2.56% versus 2.52% versus 2.53% versus 2.53% versus 2.56% versus 2.58% versus 2.61% versus 2.61% versus 2.63% versus 2.60% versus 2.65% versus 2.60% versus 2.60% versus 2.60% versus 2.64% versus 2.64% versus 2.61% versus 2.59% versus 2.58% versus 2.60% versus 2.60% versus 2.53% versus 2.47% versus 2.47% versus 2.44% versus 2.52% versus 2.53% versus 2.55% versus 2.53% versus 2.51% versus 2.54% versus 2.51% versus 2.50% versus 2.54% versus 2.61% versus 2.66%

Oil: 104.46, -0.42. Faded a bit further, near the 50 day EMA in this test.

Gold: 1320.80, -10.40.


Stats: +28.19 points (+0.63%) to close at 4485.93
Volume: 1.001B (-36.48%)

Up Volume: 667.68M (-108.35M)
Down Volume: 309.45M (-479.36M)

A/D and Hi/Lo: Advancers led 2.07 to 1
Previous Session: Decliners led 1.25 to 1

New Highs: 120 (+6)
New Lows: 19 (-1)

Stats: +10.82 points (+0.55%) to close at 1985.44
NYSE Volume: 536M (+3.47%)

A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Decliners led 1.66 to 1

New Highs: 182 (+10)
New Lows: 6 (-2)

Stats: +92.02 points (+0.54%) to close at 17068.26


VIX: 10.32; -0.5
VXN: 11.36; -0.23
VXO: 8.51; -0.41

Put/Call Ratio (CBOE): 1.02; +0.14

Bulls and Bears:

Bulls fade for the fourth week in five, now below 60: 57.6%. Not a lot of faith in this move even as it accelerates.

Bears fade modestly to 16.1%

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: 57.6% versus 60.2%
61.4% versus 62.6% versus 62.2% versus 58.3% versus 57.2% versus 55.1 versus 55.7 versus 54.7 versus 51.6 versus 50.5 versus 54.6% versus 50.5 versus 54.7% 52.0% 54.6% 53.5% 46.5% 41.8% 45.9% 53.1% 57.6 56.1 60.6% 61.6% 60.0% 58.2% 57.1% 55.7% 53.6% 52.6% 55.2% 52.6 49.5 42.3% 45.4 46.4% 44.3% 42.3% 37.1% 37.1% 38.1% 43.3%.

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

Bears: 16.1% versus 16.3%
16.3% versus 17.2% versus 17.4% versus 17.3% versus 18.3% versus 19.4% versus 20.6% versus 19.7% versus 21.7% versus 20.6 versus 18.6% 18.6% 17.5% 17.4% 15.1% 17.2% 17.2% 17.4% 17.4% 15.3% 15.1 15.3% 15.2% 15.2% 14.0 14.3 14.3% 14.4 15.5 15.5% 15.6% 16.5% 18.5 21.6% 20.6% 18.6% 20.6% 21.6% 22.7% 23.7% 23.8% 21.6%.

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.


Post-holiday, post jobs, nice upside leg. As noted, this particular leg is a bit long in the tooth as measured by other legs in this run. Indeed the overall run is getting rather extended itself. Just in time for earnings season to start, and we already saw the first warning this past week. We anticipate more in the coming week. A run into earnings, and if the warnings ratchet up it could cause the current leg to waffle.

All problems of success. We will keep focused on the leaders and watch if volatility ratchets up, the intraday and day to day type. There is a lot of excitement/hope after the jobs numbers; also watch how many come out bullish on the tube. If they turn super bullish, say we have turned the corner, just keep an eye on leaders. It all comes down to leaders.

We ended the week letting positions run after taking some gain along the way. Continue doing the same and keep looking for stocks setting up new buys in the current leadership sectors as well as any sectors that show some money rotating their way.

The move is older, some leaders are extended, there is a lot of enthusiasm. Watch the leaders and how they act. Watch the intraday and day to day volatility. If volatility jumps and leaders start breaking their near trends, a pullback of a bit larger magnitude than a 10 day EMA test is underway. Not there yet, but with the length of this move, keep an eye out for it.


NASDAQ: Closed at 4485.93

4545 is the upper channel line formed off the 11/2012 low.

4455 is the lower November 2012 trendline
The 10 day EMA at 4415
4372 is the March 2014 high
4289 is the July 2000 recovery high
The 50 day EMA at 4284
4277 is the March lower gap point
4246.55 is the January 2014 peak. Key level.
4131 is the March 2014 low
The 200 day SMA at 4109
4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
3991 is the prior November 2013 high and the post-bear market high.
3968 is the February 2014 low
3946 is the April 2014 intraday low

S&P 500: Closed at 1985.44


1932 is the December 2012 up trendline
The 50 day EMA at 1925
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1880 is the lower trendline from 11/2012
1883.57 is the early March high.
The December and January highs at 1848
The 200 day SMA at 1831
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
1768 is the December 3013 low
1738 is the February 2014 low
1730 is the September 2013 peak
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

Dow: Closed at 17,068.26

17,205 is a lower trendline off the 11/2012 low

16,970 is the June 2014 former all-time high
The 20 day EMA at 16,867
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,719
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 200 day SMA at 16,147
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
15,340 is the February 2014 low
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)

Economic Calendar

June 30 - Monday
Chicago PMI, June (9:45): 62.6 actual versus 61.0 expected, 65.5 prior
Pending Home Sales, May (10:00): 6.1% actual versus 1.5% expected, 0.5% prior (revised from 0.4%)

July 1 - Tuesday
Construction Spending, May (10:00): 0.2% prior
ISM Index, June (10:00): 55.3 actual versus 55.8 expected, 55.4 prior
Construction Spending, May (10:00): 0.1% actual versus 0.4% expected, 0.8% prior (revised from 0.2%)
Auto Sales, June (14:00): 5.7M prior
Truck Sales, June (14:00): 7.7M prior

July 2 - Wednesday
MBA Mortgage Index, 06/28 (7:00): -0.2% actual versus -1.0% prior
Challenger Job Cuts, June (7:30): 45.5% prior
ADP Employment Change, June (8:15): 281K actual versus 200K expected, 179K prior
Factory Orders, May (10:00): -0.5% actual versus -0.4% expected, 0.8% prior (revised from 0.7%)
Crude Inventories, 06/28 (10:30): -3.155M actual versus 1.742M prior

July 3 - Thursday
Challenger Job Cuts, June (7:30): -20.2% actual versus 45.5% prior
Nonfarm Payrolls, June (8:30): 288K actual versus 210K expected, 224K prior (revised from 217K)
Nonfarm Private Payrolls, June (8:30): 262K actual versus 213K expected, 224K prior (revised from 216K)
Unemployment Rate, June (8:30): 6.1% actual versus 6.3% expected, 6.3% prior
Hourly Earnings, June (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Average Workweek, June (8:30): 34.5 actual versus 34.5 expected, 34.5 prior
Initial Claims, 06/28 (8:30): 315K actual versus 315K expected, 313K prior (revised from 312K)
Continuing Claims, 06/21 (8:30): 2579K actual versus 2580K expected, 2568K prior (revised from 2571K)
Trade Balance, May (8:30): -$44.4B actual versus -$45.2B expected, -$47.0B prior (revised from -$47.2B)
ISM Services, June (10:00): 56.0 actual versus 56.5 expected, 56.3 prior
Natural Gas Inventor, 06/28 (10:30): 100 bcf actual versus 110 bcf prior

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

Jon Johnson is the Editor of The Daily at

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