InvestmentHouse Weekend Market Summary
investmenthouse.com
- Weak, very weak, jobs data disappoints investors.
- Stocks sell, but they do good work in minimizing the damage.
- Unemployment rate rises even as jobs pool falls, underscoring the weakness in jobs market.
- More testing is likely but market shows surprising strength in the face of bad news, suggesting a test versus a selloff.
MARKET SUMMARY
Woeful jobs data hurts stocks, but investors move in on the dip.
Weak jobs data on Friday disappointed investors and knocked the market back for some significant losses. Investors were not overly disappointed, however, because they used the selling to step back in and push stocks back to the upside as you can see from the chart of the SP500. They did not finish positive on the day, but there were very good recovery moves. NASDAQ was down 1.4% on its low, but it rebounded to close with just a 0.4% decline. The NYSE sold down 1.5% on its low, but it managed to recover almost half of that, closing at just 0.8%. There was downside, but it was not overly negative.
Volume fell significantly on both the NYSE and the NASDAQ. Volume on the NASDAQ fell 14%, and it was down almost 11% on the NYSE. Lower volume and the recovery off of the session lows hit early on both indicate that sellers are not just dumping stocks. The fear on the day was that investors would come in with all the good news they could possibly have and then get a bad number on the jobs report and really sell the market. It looked like they might do that early, but they did manage to find support and rally back not turning positive but nicely cutting the losses. That would suggest that our scenario is in place of a pullback to test versus a rollover.
I always thought this was a relief bounce, but I was open to change as it continued higher. It certainly has not made the breakout to a new rally high, but it exhibited good strength to the upside. Now it has had very bad news after eight days of upside and about all the good news any market could possibly have. It sold off on that bad news, but only modestly; that is another indication that this is a positive for the upside longer term. Once this pullback runs its course, it will be ready to move higher once again.
What news on the day made the difference? Of course it was the jobs report after the ADP report on Thursday came in much stronger than expected, more doubling expectations. The nonfarm payroll came in horribly weak at 18K jobs versus 80K expected. Some people already said 175K was expected on the nonfarm payrolls, and it did not come close. Moreover, May was revised to 25K from 54K, more than halving the prior iteration. Private payrolls were nowhere near the expectations of most pundits, coming in at 57K versus 110K.
The unemployment rate was interesting. It rose to 9.2% versus 9.1% before and a repeat of that number as expected. Often the unemployment rate will rise as the economy starts to improve. More people start looking for work, there are not enough jobs to absorb them all, and that equals a higher unemployment rate. This time the jobs pool fell by 270K. There were not more people looking for jobs and inflating the jobless claims numbers. Job creation is so anemic that the unemployment rate rose even with a 270K reduction in the work force. That is an indication of just how pernicious this downturn is and what trouble people have in finding work. Employers simply do not want to spend the money to hire new people.
Another important element of the report is the average workweek. It came in at 34.3 when 34.4 was expected, and 34.4 was hit the month before. There had been an increase, but it did not continue. Overall hours worked are still rather low, so there is not much pressure on companies to hire more employees.
Wholesale inventories for May rose 1.8%, doubling the 0.9% expected. The revisions were up to 1.1% from 0.8% in April. This may seem like a good thing. Companies are producing more goods, but it is not a good thing if they cannot sell them. Inventories are not stacking up because companies are making more goods; the regional PMI reports show that some areas are even contracting. There is not a big ramp up in manufacturing, and a lot of companies in the manufacturing business are cutting back or slowing down their runs. This tells us it is only a lack of sales pushing inventories higher. Retailers are not out buying as much from the wholesalers.
This economic data was more than enough to dampen the enthusiasm seen earlier in the week from the solid Chicago manufacturing number, the ISM manufacturing that was stronger than expected, and the ADP report out on Thursday. Stocks sold back and closed lower, although it was good to see them manage to recover off of the lows into the close.
OTHER MARKETS
Dollar: 1.4265 Euro versus 1.4352.
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Bonds: 3.03% versus 3.15% versus 3.10% 10 year US Treasury. Surging on the weaker economic data as you would expect.
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Gold: $1541.90, +11.30. Fear over the US outlook sent investors to the gold pits.
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Oil: $96.20, -2.47. Weak economic data meant weaker oil prices, this after spiking close to $100 yet again.
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TECHNICAL SUMMARY
INTERNALS.
Volume. The internals were not that great, but they did not do any damage. Volume was lower, down 14% on NASDAQ to 1.61B. It was lower by 10% on the NYSE to 712M. Lower volume on the selling shows that investors were not dumping their stocks. The fact that they bounced back later in the session shows that to be the case.
Breadth. Decliners were a bit worse. -2:1 on NASDAQ, decliners over advancers. -2.3:1 on the NYSE. Bad but not atrocious.
CHARTS
SP500. There is the initial selloff, but it held at the early-July low. SP500 managed to rebound and close right at that February closing high at 1343. SP500 closed at 1343.8, so it was able to hold above that level. Still an important area. It is right below the April and May peak, and it has not been able to recover yet. We still have to watch for a downtrend. Again, you have to like the way it managed to fight its way back off of those lows. That leaves it in position to test a bit more and then take on those highs and try for the breakout once again.
NASDAQ. NASDAQ lost almost 0.5%. It gapped lower. Indeed, on the low it pretty much filled the gap higher Thursday that occurred on that ADP report. It reversed off of its lows, and, while it did not close positive, it did manage to push back up into the range from Thursday. It was down and having its issues, but it also held and reversed. It is still in position to make a run at the late-April peak. Very interesting.
SP600. SP600 lost 0.7% but also sold off, undercutting the Thursday low and reversing. While it was still down on the day, it shows a good reversal. It could test some more over the next few days and deliver a new and sustained break to the upside.
SOX. All things considered, SOX performed rather admirably. It dropped 1.6%, but it tapped the 10 and 20 day EMA on the low and bounced nicely off of that level. Semiconductors will be very important in the market moving ahead, and they are trying to hang onto this rally off of the double bottom from the third and fourth week of June. They are trying to do what they need to do. As long as they manage to recover off of the lows as we saw, that is a good indication. If we can get the semiconductors to lead higher, that would be a good indication overall for the market moving higher as well.
LEADERSHIP
Leadership had a common thread, and that was it managed to hold relatively important near-term support and rebounded off of the opening lows. ININ is an indication of that. It is one I felt was good to move into on the day because it held the 50 day EMA and bounced. We just took a partial position for now. We are nibbling away at positions as they show the ability to recover. That is exactly what we wanted to see.
Other stocks are doing the same thing. After gapping higher on Thursday, DANG gapped lower but held the 20 day EMA on the low and managed to hold key support. That was worth a few partial positions as well. NTES tested nicely, tapping the 10 day EMA for the second session in a row. It recovered nicely to the close. It was also worth buying some positions.
The real leaders of the market are holding up very well. They came back to test, but they have just been using this as a reason to pull back, consolidate, and set up the next move to the upside. We are seeing this in other areas and will continue to look for stocks in position to move higher. Even after the market sold on a weak jobs report, it managed to rebound off of those lows. A lot of these leaders did the same thing, and we were ready to move in and pick up a few as they made that recovery. Nice tests, and they now look to be bouncing. Definitely worth putting your money into.
THE MARKET
SENTIMENT INDICATORS
VIX. The VIX gapped higher, but it closed virtually flat when the market recovered. Volatility is simply not exploding higher, and it shows that this selling was not that virulent. That is, of course, a good thing for the upside.
VIX: 15.95; 0
VXN: 17.45; -0.26
VXO: 15.65; +0.16
Put/Call Ratio (CBOE): 1.02; +0.17
Bulls versus Bears:
This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.
Bulls: 40.9% versus 39.8%. Rallying for a second week after that strong rebound rally. Down from 45.2% over the past month, but trying to turn back up after holding just over 35%, below which is considered bullish. Well below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.
Bears: 24.7% versus 26.9%. Falling for a second week after a rise. Big upside burst a month back from 22.6%. Passed the 23.1% hit to start April and putting the moves on 28.3% from September 2010, just as the market pulled out of that base. The 35% level is considered bullish for the market overall. For more 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.
NASDAQ
Stats: -12.85 points (-0.45%) to close at 2859.81
Volume: 1.617B (-14.35%)
Up Volume: 503.64M (-1.076B)
Down Volume: 1.11B (+830.79M)
A/D and Hi/Lo: Decliners led 2.02 to 1
Previous Session: Advancers led 3.24 to 1
New Highs: 77 (-151)
New Lows: 30 (+7)
NASDAQ CHART: Click to view the chart
NASDAQ 100 CHART: Click to view the chart
SOX CHART: Click to view the chart
SP500/NYSE
Stats: -9.42 points (-0.7%) to close at 1343.8
NYSE Volume: 712M (-10.44%)
Up Volume: 362.55M (-1.467B)
Down Volume: 1.89B (+1.571B)
A/D and Hi/Lo: Decliners led 2.35 to 1
Previous Session: Advancers led 3.56 to 1
New Highs: 114 (-326)
New Lows: 103 (-33)
SP500 CHART: Click to view the chart
SP600 Chart: Click to view the chart
DJ30
Stats: -62.29 points (-0.49%) to close at 12657.2
Volume DJ30: 131M shares Friday versus 153M shares Thursday.
DJ30 CHART: Click to view the chart
MONDAY
There is a slew of important data next week. Export and import prices are important on the 13th. We also have FOMC minutes. It is always interesting to see how the Fed is shaping up so we can figure out what will happen at the next meeting. Continuing claims on Thursday, as always. Retail Sales for June are out, and that is an important read. There is the core PPI along with the PPI. On Friday we have the CPI and core CPI along with the New York Empire Manufacturing that fell almost 8 points in June. Very important indeed.
You have to take a lot of this in light of the economic data up to this point. It does not indicate any strong recovery. On Thursday I said there was no reason to expect the jobs number to be as strong as expected unless the administration or government was playing around with the numbers. One would assume they had not done so given the weak result. There will be scrutiny on this week's economic data, though it will be hard to top the disappointment of the Friday jobs report for June.
That said, what I discussed earlier is still the relevant view of the near future. The indices sold on the news, but they were able to pare their losses nicely. That means I expect that the relief rally and the stripes it was showing are changing somewhat. It is not just a relief rally; it is trying to actually set up a test and make a new break to the upside. It can do that. It has, after all, changed somewhat. You have to be open to change in the market. We never thought it would bounce this high, and thus the plays we were making to the upside performed better than we thought as well. We have very good gain in hand. Now the question is just what I talked about last night and this morning: Will this be a pullback, a rollover, or a break higher from here?
It does not look like it has finished testing yet. Based on the action it has shown, I do not think there is necessarily a rollover in place. After all, we saw good recoveries on Friday. Very interesting, indeed. I am looking more for a test of this move. That does not mean a single day; I am looking for two, three, or maybe four or five days of a test before a move back up that could realistically have a chance of breaking through the prior highs. That did not mean we were not active. We did pick up shares of stocks such as ININ, DANG, and NTES. Those were very nice pullbacks that tapped support and looked to be ready to move back to the upside. We are already using this pullback to enter some positions. We are just taking partials right now, but if things improve with the test, we could take larger positions overall.
That is the mindset I have heading into this week. We could still get a rollover. There is no doubt that the market could just turn over and dive if the economic data continues on the heels of the Friday jobs report and shows that slowing overcomes the ADP as well as the other reports last week that suggested there was improvement taking place in the economic data. In other words, more bad news may trump the good feelings engendered during the week that helped drive the market to the upside.
More likely, given what we have seen in the action of the leaders, we will get a pullback. Somewhere back down near this 1330 range. If it can hold along that range on a three, four, or five day pullback, that puts it in excellent shape to make a new break to the upside and try to take out the prior high. That is pretty cool. We will let it do that, obviously, and enjoy the ride all the way up with our continuing upside plays. That would be a marked change from what we were expecting to happen on this move. Then again, you have to be able to adjust to the market and play accordingly.
As I said last night, I would never have been involved in this market if I would have merely trusted gut instincts. It was saying one thing, but then I saw certain stocks saying it was time to buy. I did not think I knew better than the market, so I just bought in and made money. We will do that again. We will be patient. We will probably see leaders pull back and hold, and we can do what we did on Friday and take some partial positions on those along the way. Then we have good exposure when the market starts to break back to the upside. We can start buying even more when it does that.
The jobs report was not total carnage (even though it was an ugly report) because the market is still showing resilience. If it can show that same resilience on Friday in the face of such bad news, it is likely just ready to test a bit and then make another run or take another shot at that April and May peak. After all, earnings are coming. What better way to celebrate a good earnings season than to have a bit of pullback just before it and then break to a new rally high.
Have a great weekend!
Support and Resistance
NASDAQ: Closed at 2859.81
Resistance:
2862 is the 2007 peak
2888 is the May 2011 peak
2956 from November 2000
3026 from October 2000 low
3042 is the May 2000 low
Support:
2841 is the February 2011 peak
2825 is the 2007 closing peak.
2816 is the early April peak. Key.
2796 is the February gap down point
2762 is the February low
2759 is the May low
The 50 day EMA at 2751
2723 to 2705 is the range of support at the bottom of the January to May trading range
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range)
2686 is the January 2011 closing low
2676 is the January 2010 low
The 200 day SMA at 2674
2645-2650ish from December 2010 consolidation
2603 is the March 2011 intraday low (post-Japan low)
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
S&P 500: Closed at 1343.80
Resistance:
1344 is the February 2011 peak is being challenged again
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak
Support:
1340 is the early April 2011 peak
1332 is the early March peak
1325-27 is the March 2008 closing low and the May 2006 peak.
1318.51 is the May low
1313 from the August 2008 interim peak
The 50 day EMA at 1311
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1272
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1227 is the November 2010 peak
1220 is the April 2010 peak
Dow: Closed at 12,657.20
Resistance:
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling
Support:
12,605 is the mid-May 2011 high
12,391 is the February 2011 peak
The 50 day EMA at 12,310
12,283 is the March 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
The 200 day SMA at 11,859
11,734 from 11-98 peak
11,555 is the March low
11,452 is the November 2010 peak
Economic Calendar
July 05 - Tuesday
- Factory Orders, May (10:00): 0.8% actual versus 1.0% expected, -0.9% prior (revised from -1.2%)
July 06 - Wednesday
- MBA Mortgage Index, 07/02 (07:00): -5.2% actual, -2.7% prior
- Challenger Job Cuts, June (07:30): +5.3% actual, -4.3% prior
- ISM Services, June (10:00): 53.3 actual versus 54.0 expected, 54.6 prior
July 07 - Thursday
- ADP Employment Change, June (08:15): 157K actual versus 60K expected, 36K prior (revised from 38K)
- Initial jobless claims (8:30): 418K actual versus 425K expected, 432K prior (revised from 428K)
- Crude oil inventories (11:00): -888K actual versus -4.375M prior
July 08 - Friday
- Non-Farm Payrolls, June (8:30): 18K actual versus 80K expected, 25K prior (revised from 54K)
- Private Payrolls, June (8:30): 57K actual versus 110K expected, 57K prior (revised from 83K)
- Unemployment Rate, June (8:30): 9.2% actual versus 9.1% expected, 9.1% prior
- Average workweek: 34.3 actual versus 34.4 expected, 34.4 prior (up from 34.3 the prior month)
- Hourly earnings: 0.0% actual versus 0.2% expected, 0.3% prior
- Wholesale Inventories, May (10:00): 1.8% versus 0.9% expected, 1.1% prior (revised from 0.8%)
- Consumer Credit, May (3:00): $5.1B actual versus $3.5B expected, $6.5B prior
July 12 - Tuesday
- Trade Balance, May (08:30): -$44.0B expected, -$43.7B prior
July 13 - Wednesday
- MBA Mortgage Index, 07/09 (07:00): -5.2% prior
- Export Prices ex-ag., June (08:30): 0.5% prior
- Import Prices ex-oil, June (08:30): 0.4% prior
- Crude Inventories, 07/09 (10:30): -0.889M prior
July 14 - Thursday
- Initial Jobless claims (8:30): 425K expected, 418K prior
- Retail Sales, June (8:30): -0.2% expected, -0.2% prior
- Retail Sales ex-Autos (8:30): 0.0% expected versus 0.3% prior
- PPI, June (8:30): -0.3% expected, 0.2% prior
- PPI Core (8:30): 0.2% expected, 0.2% prior
- Business Inventories, May (10:00): 0.9% expected, 0.8% prior
July 15 - Friday
- CPI, June (8:30): -0.1% expected, 0.2% prior
- Core CPI (8:30): 0.2% expected, 0.3% prior
- Empire Manufacturing, July (8:30): 0.8 expected, -7.8 prior
- Industrial Production, June (9:15): 0.2% expected, 0.1% prior
- Capacity Utilization, June (9:15): 76.8% expected, 76.7% prior
- Michigan Sentiment, July (9:55): 71.3 expected, 71.5 prior |
