Monday, January 12, 2015

Stocks Cannot Hold Early Bounce


- Stocks cannot hold an early jobs, Fed-speak bounce.
- Jobs more of the same as headlines show improvement but hollow improvement.
- Indices at next resistance, and next test in the recovery.

But jobs were great so why didn't the market rally?

Maybe because they were not so great? Maybe another month of rising jobs, falling unemployment that just doesn't feel like it to the majority of the country?

How about those Wholesale Inventories rising 0.8%, almost 3x expectations (0.3%)? But sales FELL 0.3%. Clear to see why inventories rose: not selling all the goods. This even as much of the goods for the country sit on ships outside Long Beach, still waiting to be unloaded because longshoremen don't want more efficient machines to phase out their jobs. It sucks to have your industry die off and your job become unneeded. Happened to me several years after college. Had to go a different route. So I did. It happens.

But, I digress.

How about Europe? After a couple of economic reports showed some tantalizing improvement, industrial production slid off the map. Germany -0.1% versus 0.4% expected. France -0.3% versus 0.3% expected. UK -0.1% versus 0.2% expected. Spain o.0% versus 0.7% expected. Spain continues to be the recent 'best in category.' High praise indeed for the EU.

The ECB didn't help either when, just two weeks before its next meeting when most expect some serious attempt at QE, we find out Draghi is still reviewing what type of QE program the ECB might initiate, including revisiting a private plan as well. No stock markets liked it. Draghi say, Draghi don't do? Again?

Futures were lower on the European news, perhaps on the French hostage situations as well. The jobs report jumped futures to positive.

Evans speaks again. I was working at my desk, the financial stations on as usual (muted of course). I looked up and saw Fed President Evans. Not a tape of his recent speech, but live on CNBC giving an interview. A current voting Fed president giving an interview on a financial station, discussing the Fed's policy. What the heck is going on? Why even bother with a statement anymore? Each statement is either undermined or bolstered by the parade of Fed presidents out on the stump, auditioning for their post-FOMC careers in front of the Wall Street powerful (not on CNBC, but those watching it).

Anyway, Evans pulled a 'republican Congress' move, you know, making statements that totally eviscerate any future plans (e.g. stating the government would never be shut down again, signaling the White House it can pretty much do as it wants). Evans was on air to further explain his comment earlier in the week that rate hikes at the wrong time would be 'a catastrophe.' Well, he explained it all right, saying the Fed should not increase rates until 2016 if things transpire as he sees them unfolding. Indeed, he said things were indeed unfolding just as he expected. So no hikes until 2016? What more could a market ask?

Apparently more because after opening higher, the stock indices peaked almost instantly. They sold into midmorning. Negative. 'Great' jobs, rates flat until 2016 and who knows how far beyond, Obama handing out free passes to community college (do green cards come with those?), the Republican Congress happy to do nothing again now that they are in power. Market nirvana, yet stocks sold.

Weak bounce into lunch, a second attempt to the last hour, then backsliding. Some great individual moves but overall the indices faded the Wednesday to Thursday jump higher, all closing lower ex-SOX.

SP500 -17.33, -0.84%
NASDAQ -32.12, -0.68%
DJ30 -170.50, -0.95%
SP400 -0.82%
RUTX -0.87%
SOX 0.13%

VOLUME: -13% NYSE, -17% NASDAQ. At least volume backed off from the higher volume Thursday.

A/D: -1.7:1 NYSE, -2:1 NASDAQ. Negative breadth but not as strong downside as it was upside Thursday. All kinds of positives.

The indices struggled, but they did manage to hold over some of the support recovered Thursday, e.g. the 50 day EMA. Lower volume, modest breadth. The Thursday move was not trashed. Not helped, but not trashed. As for 2015's start, down the first five sessions thanks to the Friday fade. Not a great start, but next week is a new week with a patient Fed, reinforced by Mr. Evans' 'wait until 2016' timetable for rate hikes. Oh, I get it; we just missed the first part of Yellen's statement: it was one year and six months after QE ends.


All about the jobs. Of course there is more than just the number.

Stronger jobs, stronger jobs! We have recovered all lost jobs!

Really? Perhaps in numbers if you buy the seasonally/politically adjusted numbers, but if you look at most other measures in the report, only in the Administration's dreams.

Wages: The inverse of the non-farm jobs chart. There is no recovery at all for most of America as the wages they earn from the jobs that replaced the jobs they lost as the crisis started just don't pay worth a flip. Gasoline tax cut? Gasoline will have to go negative about $15/gallon for it to make up for the difference in hourly earnings pre-collapse.

Jobs Quality: Again the low-paying sectors were right at the top of job creation. Food Service/Drinking Establishments up 43.6K, education and health 48K, leisure and hospitality +36K. Professional and Business services (secretaries) up 37.3K. Retail plummeted, rising just 7.7K versus 56K in November.

Construction jumped to 48K. The only area of serious jobs that grew significantly. Yet, bartenders are still moving in on manufacturing.

And how about that workforce?

Participation Rate: 62.7%, back to a 38 year low.

Out of workforce: 92.9M with 451K leaving the workforce.

Thanks to those 451K taking it for the team and leaving the workforce, the unemployment rate fell to 5.6%. The INSANE aspect of this is that MANY on the financial stations, so gung hopeful for the year were saying this was just excellent news. As if a low unemployment rate is the end in itself. Just like the jobs: doesn't matter if they are quality, just give us numbers. Doesn't matter that 92.9M working aged people out of 317M total US population (edging closer to one-third total population) are completely out of the work force because, damn it, the unemployment rate is lower that it was pre-crisis.

Mission Accomplished!
How about that age gap? Still there? You betcha!

Indeed, those 55+ in the workforce hit an all-time high! 39.2M, +1.3M year/year. Impressive sir. Especially as they put in an all-time high in November as well!

Note the 'everything else' category, ages 16 to 54: the red line remained flat after dropping in November's 'big month.' Again the younger group NNA for jobs. Millions with diplomas, huge tuition debts, more coming with 'free' community college, living at mom and dad's with no job prospects.

7 years of college down the drain . . . --Bluto, 'Animal House' (1977)

Oh yes, and for those keeping score from last month's rundown of Presidents and 300+K job months, there are STILL just 2 months of 300K jobs during this President's 6 year reign.

So many inconsistencies.

2.9M jobs claimed created in 2014. Unemployment falls to 5.6%.

At the same time:
252K jobs created yet 451K people leave the workforce.

2.9M jobs created but those out of the work force rise to 92.9M, an all-time record. So the most jobs created in a year in decades but also the most people out of the workforce, ever.

Wages fall 0.2% while November's surge that supposedly marked a new recovery era of jumping wages was written down to 0.2% from 0.4%. How are wages FALLING when unemployment is at pre-Recession lows and the most jobs since 2009 were created?

Not even addressing the jobs type or quality. There are serious problems in the US economy in the type of jobs created and the warping of the workforce. Why work at a menial, low pay job when you can just not work and get pretty much the same without the hassle?

Quit, get the benefits, work some cash jobs you don't pay taxes on, avoid Obamacare expenses for insurance policies you couldn't even use anyway because you cannot afford the deductible (but are mandated to buy), and come out better or as well than if you did what the Administration wants and work one or two or three menial jobs.



SP500: After surging through the 50 day EMA and the lower trendline to the long uptrend channel, Friday SP500 gave back part of the move. Held above the 50 day EMA but closed below the channel. Three channel breaches in three months. Kind of important to SP500 that Friday was just a pause after two strong moves. If not, it has set up something of a head and shoulders. Have that SPY play still in the hopper.

NASDAQ: Fared a bit better in terms of the day though the pattern is still worrisome. After gapping through the 50 day EMA Thursday NASDAQ faded to test, tapping at the 50 day EMA on the low, rebounding a bit to hold the 10 day EMA on the close. Lower trade on the test, a positive. As with SP500, needs to hold and continue higher from here.

DJ30: As with the other large cap indices, faded Friday after two solid moves and touching near the early December high. Holding at the 10 day EMA but a very important test to hold and break through the 18K level. If not, well there is the DIA to short for a move near 17K.

RUTX: Thursday a gap over the November/December trading range then a test here as well. More or less at the top of that range, and if there is going to be a January Effect, at some point, it should hold around here and rally.

SP400: After rallying to the November high Thursday, the midcaps faded to the 20 day EMA. As with RUTX, they need to hold here and start back up.

SOX: Doji Friday after a big gap higher Thursday through the 50 day EMA. Double bottom at the July and September highs with the bounce starting Wednesday. Not bad action, indeed positive on the Friday session, but with the look of the other indices it is all 'what have you done for me lately.'


Electronics/Chips: Fitting as they were positive on a weak market session. TSEM broke higher on solid volume. VIMC hit our initial target in less than a week, surging Thursday and Friday. SPIL. RBCN looks ready to turn.

Social Media/Internet: TWTR turned nicely higher. FB tested, but put in a good upside break for the week. PLNR continued its bounce off the breakout test. YELP gapped upside off the 5 week lateral move that could be the bottom.

Biotech/Drugs: ACAD broke nicely higher Friday. TGTX faded Friday, but lower volume, still in good shape. XLRN enjoyed a good week though closed flat Friday after gapping higher.


Stats: -32.12 points (-0.68%) to close at 4704.07
Volume: 1.666B (-17.69%)

Up Volume: 634.31M (-1.066B)
Down Volume: 1.06B (+674.04M)

A/D and Hi/Lo: Decliners led 1.95 to 1
Previous Session: Advancers led 2.9 to 1

New Highs: 83 (-12)
New Lows: 52 (+11)

Stats: -17.33 points (-0.84%) to close at 2044.81
NYSE Volume: 732.1M (-13.69%)

A/D and Hi/Lo: Decliners led 1.7 to 1
Previous Session: Advancers led 3.32 to 1

New Highs: 152 (-47)
New Lows: 63 (+30)

Stats: -170.5 points (-0.95%) to close at 17737.37


VIX: 17.55; +0.54
VXN: 18.4; +0.25
VXO: 16.27; +1.16

Put/Call Ratio (CBOE): 0.99; +0.14

Bulls and Bears:

Bulls: 50.5% versus 56.4% versus 52.5% versus 49.5% versus 51.5% versus 53.4% versus 56.5%. Right back down with a big drop after touching 56% again. Not punching through and that is a decent indication that investors are not totally gung ho.

Bears: 15.2% versus 14.9% versus 15.8% versus 14.9% versus 14.8% versus 13.9% versus 13.8% versus 14.9%. Starting to skew just a bit to the slightly more bearish side. Still, a stubbornly low number of bears, and that is an important indication that while bulls capped out at lower levels, there are still just not many bears.

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: 50.5%
56.4% versus 52.5% versus 49.5% versus 51.5% versus 53.4% versus 56.5% versus 56.4% versus 55.5% versus 54.6% versus 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%

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

Bears: 15.2%
14.9% versus 15.8% versus 14.9% versus 14.8% versus 13.9% versus 13.8% versus 14.9% versus 14.8% versus 15.1% versus 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%

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.


Bonds (10 year): 1.95%
2.02% versus 1.97% versus 1.94% versus 2.04% versus 2.12% versus 2.17% versus 2.19% versus 2.21% versus 2.25% versus 2.26% versus 2.165% versus 2.17% versus 2.21% versus 2.14% versus 2.05% versus 2.11% versus 2.08% versus 2.18% versus 2.16% versus 2.22% versus 2.26% versus 2.31% versus 2.24% versus 2.29% versus 2.29% versus 2.22 versus 2.17% versus 2.21% versus 2.24% versus 2.26% versus 2.30% versus 2.31% versus 2.34% versus 2.35% versus 2.32% versus 2.34% versus 2.32% versus 2.35%

Bouncing right back up off the 10 day EMA test.

Oil: 48.36, -0.43. Worked laterally Wednesday to Friday, again trying to form a shelf to test the 10 day EMA.

Gold: 1216.10, +15.60. Starting to bounce after testing the break through the 50 day EMA.

$/JPY: 118.50 versus 119.69 versus 119.43 versus 118.39 versus 119.62 versus 120.50 versus 119.81 versus 119.51 versus 120.67 versus 120.31 versus 120.48 versus 120.79 versus 119.99 versus 119.49 versus 118.83 versus 118.86 versus 116.81 versus 117.61 versus 118.75 versus 119.07 versus 118.12 versus 119.76 versus 120.55 versus 121.42 versus 119.78 versus 119.81 versus 119.21 versus 118.36 versus 118.63 versus 117.58 versus 117.93 versus 118.27 versus 117.73 versus 117.96 versus 118.00 versus 116.98 versus 116.47 versus 116.29 versus 115.74

After moving up modestly on the week, the dollar sold hard versus the yen Friday, and that played as much a role in the market selling as anything.

Euro/$: 1.1842 versus 1.1789 versus 1.1839 versus 1.1890 versus 1.1934 versus 1.2002 versus 1.2099 versus 1.2156 versus 1.2143 versus 1.2183 versus 1.2203 versus 1.2171 versus 1.2223 versus 1.2225 versus 1.2284 versus 1.2345 versus 1.2509 versus 1.2448 versus 1.2462 versus 1.2389 versus 1.2439 versus 1.2366 versus 1.2318 versus 1.2289 versus 1.2379 versus 1.2313 versus 1.2383 versus 1.2473 versus 1.2452 versus 1.2509 versus 1.2477 versus 1.2442 versus 1.2386 versus 1.2549 versus 1.2543 versus 1.2532

Despite the ECB's indecisiveness regarding what kind of QE to use at such a late date, the euro rallied. Oh yeah; if no QE, no diluting the euro so that makes sense.


The market appears to want it all: strong economic data yet 0% interest rates as well. The December data has not been that strong; not shriveling, but not as strong as wanted if this economy is supposedly taking off. Jobs apparently didn't do the job, and the prospect that 0% rates were here for another year (as confirmed by Evans) was not enough by itself. Man, hard to please. You print several trillion dollars, the Administration raises the debt by almost $8T in 6 years and the market acts PO'ed? Ingrates.

So, with the Friday action as less than thrilling post-jobs (raising the question again if jobs were any good despite the gains), the indices are left in a vulnerable position. There is some leadership though not a wide swath in many sectors across the market. With the mediocre leadership (in numbers, not quality), the index patterns are worrisome as they test levels that will either roll over and form a head and shoulders, or they will continue the Thursday strength and break higher. Critical point.

Thus we are still looking at some solid upside plays to go along with the solid plays we entered on the week. They are certainly out there. Of course, given the index patterns you also need to consider downside if the Wednesday and Thursday move stalls out. SPY, BRCM are on and we are considering some DIA and some individual downside play as well to keep BRCM company.

Evans says don't worry until 2016. Jobs were supposedly more than good enough. The economic data in December is not great but not tanking. Seems like enough to keep stocks going. I guess Europe is an issue with the ECB still trying to figure out how to spell QE. There is also earnings season just ahead, and don't forget the yen. It started to rise Friday after trying to consolidate for a week.

Again, an important juncture as the indices tested a good rebound right at some resistance. Enough leadership but not dominating; it still needs to grow and improve. We anticipate more upside and are letting our positions run, but don't assume the market has to go up without a further test. The index patterns are not reassuring, and the response to Evans and the jobs report just were not that inspiring.


NASDAQ: Closed at 4704.07

4811 is the November 2014 peak (intraday)

The 50 day EMA at 4673
4631 is the October 2014 upside gap point
4610 is the September 2014 post-bear market high.
4566 is the lower gap point from late October
4547 is the December low
4545 is the 38% Fibonacci retracement
4486 is the July 2014 high
The 200 day SMA at 4431
4372 is the March 2014 high
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

S&P 500: Closed at 2044.81

2055 is the lower trendline from 11/2012
2076 is the all-time high from November
2079 is the intraday all-time high from November
2118 is the December 2012 up trendline

The 50 day EMA at 2035
2011 is the September prior all-time high
1991 is the July 2014 high
1972 is the December 2014 low
The 200 day SMA at 1963
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

Dow: Closed at 17,742.19

17,991 is the early December all-time high

The 50 day EMA at 17,588
17,351 is the September 2014 all-time high.
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
17067 is the December 2014 low
The 200 day SMA at 16,981
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
16,736 is the penultimate all-time high from May 2014
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


January 5 - Monday
Auto Sales, December (14:00): 6.1M prior
Truck Sales, December (14:00): 7.9M prior

January 6 - TUESDAY
Factory Orders, November (10:00): -0.7% actual versus -0.4% expected, -0.7% prior
ISM Services, December (10:00): 56.2 actual versus 58.5 expected, 59.3 prior

January 7 - WEDNESDAY
MBA Mortgage Index, 01/03 (7:00): 11.1% actual versus -18.2% prior
ADP Employment Change, December (8:15): 241K actual versus 230K expected, 227K prior (revised from 208K)
Trade Balance, November (8:30): -$39.0B actual versus -$41.8B expected, -$42.2B prior (revised from -$43.4B)
Crude Inventories, 01/03 (10:30): -3.062M actual versus -1.754M prior
FOMC Minutes, 12/17 (14:00): Fed is patient, won't raise before April meeting, rest of the world is something to worry about.

January 8 - THURSDAY
Challenger Job Cuts, December (7:30): 6.6% actual versus -20.7% prior
Continuing Claims, 12/27 (8:30): 2452K actual versus 2365K expected, 2351K prior (revised from 2353K)
Initial Claims, 01/03 (8:30): 294K actual versus 290K expected, 298K prior
Continuing Claims, 12/27 (8:30): 2452K actual versus 2365K expected, 2351K prior (revised from 2353K)
Natural Gas Inventor, 01/03 (10:30): -131 bcf actual versus -26 bcf prior
Consumer Credit, November (14:00): $15.0B expected, $13.2B prior
Consumer Credit, November (15:00): $14.1B actual versus $15.0B expected, $16.0B prior (revised from $13.2B)

January 9 - FRIDAY
Nonfarm Payrolls, December (8:30): 252K actual versus 245K expected, 353K prior (revised from 321K)
Nonfarm Private Payrolls, December (8:30): 240K actual versus 235K expected, 345K prior (revised from 314K)
Unemployment Rate, December (8:30): 5.6% actual versus 5.7% expected, 5.8% prior
Hourly Earnings, December (8:30): -0.2% actual versus 0.2% expected, 0.2% prior (revised from 0.4%)
Average Workweek, December (8:30): 34.6 actual versus 34.6 expected, 34.6 prior
Wholesale Inventories, November (10:00): 0.8% actual versus 0.3% expected, 0.6% prior (revised from 0.4%)

By: Jon Johnson, Editor
Copyright 2015 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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