MARKET SUMMARY
- Cognitive dissonance continues with the October jobs report.
- Stocks jump on the jobs report, then don't.
- Younger age worker demographic throws in the towel, joins seniors in taking low-pay jobs.
- Just as likely to meet a waiter as a manufacturing worker.
- SP500, DJ30 appear a bit extended as NASDAQ, RUTX set up to move up as the large caps rest.
Jobs report misses, viewed as still solid. Stocks rally, then don't.
Jobs missed the number, but unemployment was lower and the August massive miss was revised upward, so, as long as numbers can be revised away, all is well. As if changing the August number made anyone feel better. The obviously felt better at the polls on Tuesday, right?
Stocks surged pre-market on the news then gave up that surge as the open approached. By the end of the first hour they were negative. Impressive jobs report indeed. No major selling, just trying to figure out what the jobs report means vis- -vis the economy and importantly, how it impacts the Fed's view.
Stocks rebounded midday, held the move into mid-afternoon, but rolled back prices a la Wal-Mart once again. The last hour saw a few bids but nothing major, and the indices finished the session resoundingly . . . mixed.
SP500 0.71, 0.03%
NASDAQ -5.94, -0.13%
DJ30 19.46, 0.11%
SP400 0.04%
RUTX 0.12%
SOX -0.90%
VOLUME: NYSE +3%, NASDAQ -4.5%
A/D: 1.5:1 NYSE, flat NASDAQ
In reality, from the market's technical standpoint, the day was more of the same. SP500, SP400, and DJ30 continued their moves higher while NASDAQ, RUTX, and SOX worked on their lateral moves. The jobs report, however, added a wrinkle in the form of trying to figure out what it meant and pricing it into stocks. As the session showed us, however, the jobs report was really no change from the status quo. Question is, is that good for the economy or bad for the economy?
US accepts mediocrity as the new normal?
Embrace the horror. Those were Rock Hound's words as the drilling crew from 'Armageddon' approached the zero barrier that when breached would be the point of no return for impact between the asteroid they were riding and earth. In the movie, the other characters did not give up and saved earth. Will US citizens embrace the horror or keep working for what they know is right and save the US economy?
Rockhound bound after trying to embrace the horror.
While the October jobs report may have not been a horror, what is almost horrifying is how the US is willing to accept at best a mediocre string of reports pitted with continuing chronic flaws that point to a permanent structural shift in the US labor force. Not knocking change. Change can be good. This change, however, is to the detriment of the majority of US citizens . . . those who do actually work . . . and the standard of living for us and our progeny.
Proof? Friday a study was released showing the US ranking among all major nations in terms of percentage of wealth held by the middle class is third from the bottom. The only poorer middle classes are in Russia and India.
While that is a shocking statistic, it is not so shocking when you consider that the mean US income is just $28K (meaning half the people make less than that), the largest US employer today pays an average $8/hour while 40 years ago the largest employer paid $28/hour, and with a population of 317M people, over 100M working age adults are NOT working at all, either unemployed or just part of the permanent non-working class that the rest of the country must support.
What the Fed's and Administration's policies have accomplished is one of the most massive transfers of wealth from the working middle class to the extremes of the socioeconomic spectrum. The Fed's policies have benefitted the wealthy asset owners by increasing the value of assets without, however, increasing the number of assets or productive capacity. The Administration's policies have benefitted the non-working class by increasing federal handouts (e.g. redefining what is seeking work under state unemployment laws to include parent-teacher conferences, bed rest, etc.) to the point a person who takes advantage of all federal programs has as much disposable income as a family of four making $69K per year.
You cannot accomplish such a complete perversion of the US economic and socioeconomic without taking massive amounts of money from somewhere, and we know that it is taken away in the form of income taxes from what used to be the vast majority that worked at a decent job to provide a decent home and education for their family.
The Obama administration has once again proved that collective intentions to help the middle class, if we take his statements at face value that helping them is his primary goal, fail horribly if they involve increasing regulations, increasing taxes, increasing handouts, forcing uneconomically sound policies upon us, e.g. energy 'solutions'. They do not pay for themselves and as a result wealth is stripped from the working middle class and transferred to the permanent non-working class and the extremely wealthy. Why? Neither of those groups typically pay income taxes because they don't earn enough or can structure their earnings in such a way they are not taxed and can avoid regulation.
The result is what we have now: an economy that by traditional measures (though not so traditional given how the calculations are constantly changed to downplay the true changes occurring) appears to be growing, but whose benefits only accrue to a small portion of the population.
Those unemployed and choosing to leave the workforce have a plethora of benefits that provide a surprisingly comfortable living. As Bruce Willis said in the old TV show 'Moonlighting,' poverty is the greatest motivator in a free enterprise system. We have removed poverty from the equation of those who choose not to work, but in so doing we are impoverishing those who pay for those who choose not to work.
Those of great wealth enjoy the increase of financial assets brought about by trillions of dollars pumped into an economy that, as we have seen, has still very little demand. Thus the dollars go into financial markets and inflate financial asset prices. The money is not from massively increased sales and growth; we still see many, many companies reporting earnings beats where sales miss or are outright falling. The money made is not put into purchasing equipment, hiring, and expanding the business (that slow consumption problem makes that a bad choice), but instead to buy back shares. That increases share prices even more, placates activist investors such as Carl Icahn that want more returns versus company growth, triggers performance bonuses, and basically makes those holding assets even wealthier without any real economic growth.
That is why the top 0.01% of the US has seen a 28% increase in wealth during the past 5 years when the average citizen has seen zero wage growth. This is not a sold, growing economy, but one where capital investment is no longer in equipment, people and the business of the business, but investment in paper for paper profits.
The Jobs Report
Never have so few worked when so many are supposedly working.
What a recovery! Look at those wages, 'soaring' well below the levels of prior recoveries.
Friday I heard a New York Times writer on CNBC talking the jobs report and stating how things are so much better and wondering why some were still so unimpressed by the October numbers. When he was reminded that wage growth has been stagnant for 10 years and was again weak in the October report, his response was 'just a few years ago people were happy to have a job!' Suggesting what, they should still just be happy to have a low-paying, go nowhere job? That is improvement? Apparently under the new normal, 'mediocrity is great for America,' simply being able to scratch out an existence is what America is now all about.
There are some telling stats in the report. There always are, right? These stats have many scratching their heads as to the meaning. To us it is pretty clear when pieced together. Not hard to do, just apply logic and economic history. Perfectly clear. Sadly clear.
First, there was a surge in jobs for the 16 to 24 age demographic. The household survey (unemployment number) saw +683K jobs. Of those, 528K (77%) were the 16 to 24 year olds. Biggest jump in more than a decade. Huge.
Second, of the 214K jobs created, 42K were in the food industry, i.e. bartenders, waiters, kitchen help. 20% of the jobs or 1 in 5 in, again, one of the lowest paying sectors. Over the past 12 months those have averaged 26K per month, so October saw a whopping 61% rise.
To us the conclusion is simple: those in the young age demographic that have suffered slow jobs growth in their chosen fields (even as Bill Gates laments the supposed lack of STEM degree talent in the US while 72% of those former students without jobs have degrees IN the STEM categories) finally gave up on finding jobs in their chosen fields. They are forced to take the low-paying jobs that are, sadly, the bread and butter of this economy. Those are far and away the predominant jobs created in this overregulated, overtaxed, 'friend of the feds gets you the favors' economy we now have.
The result? Wages didn't budge and thus lost ground. Again. Over a decade of stagnant wage growth because the majority of the jobs we are creating are the low-end, low pay jobs versus the cutting edge, high skill, highly paid 'breadwinner' jobs the US economy typically creates. Thus wages continue their decline.
Further, look at the trend in the mix of US workers. With the rise of the bartender/waitress class and its share of the jobs gains, likely within one maybe two quarters there will be more bartenders and waiters in the US than manufacturing workers. Thus it is NO surprise that 6 years of recovery show no rise in wages. If you want to extrapolate that further, you can look at the Tuesday election results and conclude it was not an anti-incumbent vote as some are spinning it, but an anti-socialist, big government agenda vote from people tired of hearing about how great the economy is but never seeing it in their jobs or lives.
After the jobs report on Friday the President spoke, thanking the US citizens. For what? Accepting decreased wages? Accepting the lack of opportunity as the US still destroys more small businesses than it creates? Accepting a decline in our standard of living and that of our kids? The citizen that is making the payments on the national debt is tapped out and tired of other people spending his money for other people who don't work nearly as hard. The big question for the US is whether the latter win out or if the structural change is so pervasive that this last vote for the perceived lesser of two evils is their last stand, and thus the last stand for the US economy as it once was.
THE MARKET
Stocks were up on the jobs report and then they weren't. It was back and forth all day as investors digested just what the miss for the month meant versus the upside revisions, as well as continuing poor participation, poor wages, and poor jobs quality now 6 years out in a 'recovery.' They were flat and undecided on the day.
In reality, form the market's technical standpoint, the day was more of the same. SP500, SP400, and DJ30 continued their moves higher while NASDAQ, RUTX, and SOX worked on their lateral moves.
Perhaps SP500 and DJ30 are a bit extended. A straight up run for three weeks with just three downside sessions and two of those were barely downside. At the same time NASDAQ and Russell are working on nice lateral consolidations. The technical picture is setting up where it could be that the Dow and SP500 need to take a breather, and that NASDAQ and company will be ready to fill in with new upside breaks when the large cap NYSE indices need to take a breather. Could be a great setup to continue the 'pat' October bottom then run to year end.
CHARTS
SP500: Doji on the session after three weeks to the upside and a new high. Mid-channel in the 11/2012 uptrend channel. Still has momentum upside of course, but a bit near term extended. If it does pull back it likely tests the channel at 2005ish and that sets up the next run toward year end.
NASDAQ: After gapping upside to a new post-bear market high two Fridays back, NASDAQ continues working in a lateral range, waiting for the 10 day EMA to catch up. The 10 day EMA is getting closer, and NASDAQ is setting up to continue its run once SP500 and DJ30 decide it is their turn to take a breather.
RUTX: Same position as NASDAQ, working laterally in a tight range after gapping upside. Also waiting for the 10 day EMA to catch up and start it to the upside once more. It is at some resistance from the September peak, but with the other indices moving higher, RUTX likely follows them, particularly when NASDAQ breaks higher from the same pattern.
SOX: Tougher Friday, but after reaching into the gap zone from the prior Fridays move, SOX recovered some lost ground to close at the upper gap point. It too is working laterally at some resistance (July and September twin peaks), under a bit of pressure, but when RUTX and NASDAQ moves, SOX likely moves as well. Thought earlier in the week (Wednesday) it might try to lead higher, but it instead needed a test.
LEADERSHIP
Last week saw transport, utility, financial, retail, industrial machinery, personal products stocks all make solid moves. A rather varied mix, but they all had the attribute of being large cap sectors. Thus SP500 and DJ30 moved up, riding those sectors higher.
Growth saw struggles. Biotechs again suffered selling. Big name techs such as GOOG experienced selling pressure. Chips show some signs of trying to make turns, but as with energy stocks, they need to show some breaks that stick. A trying week for growth sectors but with NASDAQ, RUTX, and SOX in nice tight lateral consolidations, we could see some growth step up and produce good entries and good moves as those indices break back upside following their tests.
MARKET STATS
NASDAQ
Stats: -5.94 points (-0.13%) to close at 4632.53
Volume: 1.836B (-4.57%)
Up Volume: 996.19M (-173.81M)
Down Volume: 949.34M (+153.15M)
A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Advancers led 1.38 to 1
New Highs: 115 (-10)
New Lows: 66 (-4)
S&P
Stats: +0.71 points (+0.03%) to close at 2031.92
NYSE Volume: 773.6M (+2.89%)
A/D and Hi/Lo: Advancers led 1.56 to 1
Previous Session: Advancers led 1.33 to 1
New Highs: 147 (-20)
New Lows: 40 (-20)
DJ30
Stats: +19.46 points (+0.11%) to close at 17573.93
SENTIMENT INDICATORS
VIX: 13.12; -0.55
VXN: 14.71; -0.97
VXO: 12.43; -0.66
Put/Call Ratio (CBOE): 0.95; +0.04
Bulls and Bears:
Bulls: 54.6% versus 47.0% versus 35.3% versus 37.8% versus 45.5%. Bulls continues their upside surge. This is suddenly closer to 60, an extreme level that has killed off all upside rallies the past year and more.
Bears: 15.1% versus 16.3% versus 18.2% versus 17.3% versus 14.1%. And bears are fading away. Another indication suddenly too many are too confident.
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.
Bulls: 54.6%
47.0% versus 35.3% versus 37.8% versus 45.5% versus 47.5% versus 48.0% versus 52.5% versus 57.6% versus 56.1% versus 52.5% versus 49.5% versus 46.4% versus 50.5% versus 55.6% versus 56.5% versus 56.6% versus 60.6% versus 57.6% versus 60.2% versus 61.4% versus 62.6% versus 62.2% versus 58.3% versus 57.2% versus 55.1 versus 55.7 versus 54.7
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
Bears: 15.1%
16.3% versus 18.2% versus 17.3% versus 14.1% versus 15.1% versus 15.3% versus 15.2% versus 14.1% versus 13.3% versus 15.1% versus 16.2% versus 16.2% versus 17.1% versus 16.2% versus 17.2% versus 15.1% versus 15.2% versus 16.1% versus 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%
Background: Over 35% for bears is the threshold to be really be a good upside indicator. The best indication is when bears cross up through bulls as the two merge. Right now bulls are coming back down from the 60 level that has consistently marked market tops over the past two years. The rapid decline in progress is pushing the bulls/bears lines toward one another. Still far from a cross with bulls falling faster than bears are rising, but bears are warming up to the notion of market weakness.
OTHER MARKETS
Bonds (10 year): 2.30% versus 2.38% versus 2.34% versus 2.33% versus 2.339% versus 2.33% versus 2.31% versus 2.32% versus 2.29% versus 2.26% versus 2.26% versus 2.28% versus 2.22% versus 2.18% versus 2.20% versus 2.16% versus 2.14 versus 2.20% versus 2.28% versus 2.31% versus 2.34% versus 2.42% versus 2.44% versus 2.44% versus 2.41% versus 2.49% versus 2.48% versus 2.53%
After the four week test back to the 50 day EMA, bonds jumped higher after the 'very solid' jobs report. So, just how solid of a report did bonds think it was? Not very.
Oil: 78.85, +0.74. Bounced modestly the back half of the week, but still in a nasty downtrend below the 10 day EMA. Just now coming up to test the 10 day so we will see if it has any juice.
Gold: 1169.80, +27.20. Exploded higher after the jobs report. Obviously gold did not have much faith in the October jobs numbers either.
$/JPY: 114.60 versus 114.98 versus 114.64 versus 113.60 versus 113.73 versus 112.32 versus 109.23 versus 108.89 versus 108.16 versus 107.83 versus 108.13 versus 108.17 versus 107.20 versus 106.88 versus 106.38 versus 106.875 versus 106.33 versus 105.92 versus 107.05 versus 107.29 versus 107.66 versus 108.12 versus 107.95 versus 108.96
Euro/$: 1.2455 versus 1.2387 versus 1.2486 versus 1.2456 versus 1.2493 versus 1.2525 versus 1.2610 versus 1.2632 versus 1.2734 versus 1.2698 versus 1.2670 versus 1.2650 versus 1.2645 versus 1.2723 versus 1.2810 versus 1.2760 versus 1.2809 versus 1.2838 versus 1.2658 versus 1.2683 versus 1.2628 versus 1.2748 versus 1.2680 versus 1.2627
Faded Friday after the surge Thursday. Not so strong a dollar suggests not so impressed with the jobs numbers.
THIS WEEK
To us the moves in the coming week will be more technical than news driven. We have the jobs report, we have a lot of earnings in the bank. We know the lay of the land. SP500 and DJ30 appear extended or getting there. NASDAQ, RUTX, and SOX are all tested and rested. We could easily see SP500 put in a higher high, perhaps to the upper trendline and test, then after NASDAQ and company bounce as money rotates.
Money is not leaving the market, it just moves when an area gets overdone such as the small biotechs. So, given NASDAQ, RUTX and SOX have sectors that have rested, you want to look to see what stocks in those sectors are in position to move higher.
STX is testing the 10 day EMA. NOR in aluminum is not extended but showing a good pattern. Look for stocks that are not extended. RUTH sizzled upside midweek and is currently testing. There are stocks testing as the indices test. JD's pattern is shaping up. CCMP in semis is testing the 10 day EMA. Trying to set up, ready for money to rotate their way so they can start their moves again.
So, look for money rotating to stocks in solid position and solid patterns to catch the money and move to the upside. SPIL is another example. ANAD is trying to make its move. OCLR in chip equipment is set up as well. They just need money.
We will be tasked with finding those plays in position and being ready to move in as they get the money flowing their way.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4632.53
Resistance:
Support:
4610 is the September 2014 post-bear market high.
The 10 day EMA at 4583
4486 is the July 2014 high
The 50 day EMA at 4483
4372 is the March 2014 high
The 200 day SMA at 4328
The August low at 4321
4316 is the lower gap point from October 2014
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak
4185, the May lower gap point
4131 is the March 2014 low
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 2031.92
Resistance:
2058 is the December 2012 up trendline
Support:
2011 is the September prior all-time high
1991 is the July 2014 high
2000 is the lower trendline from 11/2012
The 50 day EMA at 1968
The 200 day SMA at 1917
1905 is the August 2014 low
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The December and January highs at 1848
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
Dow: Closed at 17,573.93
Resistance:
Support:
17,351 is the September 2014 all-time high.
The 10 day EMA at 17,286
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
16,970 is the June 2014 former all-time high
The 50 day EMA at 16,949
16,946 is the June 2014 peak
16,736 is the penultimate all-time high from May 2014
The 200 day SMA at 16,637
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
16,341 is the May low
16,334 is the August 2014 low
16,257 is the January 2014 low
16,179 is the November 2013 peak.
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
ECONOMIC CALENDAR
November 7 - Friday
Nonfarm Payrolls, October (8:30): 214K actual versus 235K expected, 256K prior (revised from 248K)
Nonfarm Private Payr, October (8:30): 209K actual versus 230K expected, 244K prior (revised from 236K)
Unemployment Rate, October (8:30): 5.8% actual versus 5.9% expected, 5.9% prior
Hourly Earnings, October (8:30): 0.1% actual versus 0.2% expected, 0.0% prior
Average Workweek, October (8:30): 34.6 actual versus 34.6 expected, 34.5 prior (revised from 34.6)
Consumer Credit, September (15:00): $15.9B actual versus $16.0B expected, $13.5B prior
November 12 - Wednesday
MBA Mortgage Index, 11/08 (7:00): -2.6% prior
Wholesale Inventorie, September (10:00): 0.2% expected, 0.7% prior
November 13 - Thursday
Initial Claims, 11/08 (8:30): 281K expected, 278K prior
Continuing Claims, 11/01 (8:30): 2355K expected, 2348K prior
JOLTS - Job Openings, September (10:00): 4.835M prior
Natural Gas Inventor, 11/08 (10:30): 91 bcf prior
Crude Inventories, 11/08 (11:00): 0.460M prior
Treasury Budget, October (14:00): -$90.6B prior
November 14 - Friday
Retail Sales, October (8:30): 0.3% expected, -0.3% prior
Retail Sales ex-auto, October (8:30): 0.3% expected, -0.2% prior
Export Prices ex-ag., October (8:30): -0.2% prior
Import Prices ex-oil, October (8:30): -0.1% prior
Mich Sentiment, November (9:55): 87.5 expected, 86.9 prior
Business Inventories, September (10:00): 0.2% expected, 0.2% prior
By: Jon Johnson, Editor
Copyright 2014 | All Rights Reserved
Jon Johnson is the Editor of The Daily at InvestmentHouse.com
Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com
