Chicken Little is Alive and Well

In Friday morning’s piece, The “All-Important” Jobs Report, I discussed that it’s much more important to watch how the markets react to the news rather than what the actual news is. The jobs report was abysmal and the media reacted in kind by rolling out every bearish economist to let us know that the economy was as weak as anytime since 2009. Market strategists also responded as expected with the same wrong calls for a major correction and new bear market.

How many times have we heard these Chicken Littles calling for the end of the world over the past 7 years? It’s such a joke than anyone listens anymore to people who have been continuously misguided for that long. Don’t get me wrong. I make more than my fair share of mistakes. It’s always okay to be wrong; it’s just not okay to stay wrong.

Anyway, after some weakness early Friday morning, stocks slowly and surely rallied throughout the day into the close. That continued on Monday and Tuesday with the S&P 500, S&P 400 and Russell 2000 closing at new highs for 2016. Since I turned positive again on stocks on May 23, the major indices have rocketed higher and are still moving higher today. The peak is not close at hand although some short-term pause to refresh may be closer on the horizon. That could mean 1-3% on the downside. Buying weakness remains the correct strategy until proven otherwise as has been the case since early February.

Interesting to note that almost no one is talking about the fact that both stocks and bonds are rallying sharply together…

If you would like to be notified by email when a new post is made here, please sign up HERE.

The “All-Important” Jobs Report

Another new month, another employment report. As usual, the media is hyping this to the Nth degree as a clue to what the Fed is going to do with interest rates later this month. I learned very early on that economic reports and earnings and geopolitical news don’t really matter. It’s how the markets REACT to the news that’s really important. In October 2000, companies started reporting very solid earnings, but stocks fell sharply day after day in what became a multi-year bear market. Even in January 2008, GDP was reported to be be on the strong side, just as stocks were collapsing into the first 20% decline of the bear market.

Don’t get hung up on what is released today.

Stocks closed Thursday at their highest levels of the year, something I have been discussing here after turning positive on the market almost two weeks ago. History says there is a 75% chance that stocks close higher on Friday. Then, yet another short-term, routine and healthy pullback should ensue. If stocks gap up at least moderately after the employment report, that would be a good selling opportunity for very short-term oriented people with the idea to buy them back into the first bout of weakness from the typical post-jobs hangover.

Intermediate and long-term, the stock market remains constructive with all-time highs on the way.

If you would like to be notified by email when a new post is made here, please sign up HERE.

April Employment Report Turns the Tide

One of my long held beliefs is that it really doesn’t matter what the news is, only how the markets react. In almost 27 years of trading, investing and watching, I have seen it too many where the news is so powerful in one direction, yet the market reaction is the exact opposite. Hence, the terms “buy the rumor, sell the news” or “sell the rumor, buy the news”. And sometimes, the news is as expected, yet markets see a more violent reaction. That was the case on Friday with the April employment report.

Since the economic recovery began in 2009, my thesis has been that the U.S. will have your typical post financial crisis recovery, seen many times previous after the Great Depression part I, South America, Latin America and Japan. Growth teases and tantalizes on the upsides, yet ever fully reaches escape velocity where GDP feeds on itself. Historically, it takes two full recessions to return the economy to its previous “normal” state. After six years, that’s where our economy remains.

After another brutal winter in the eastern half of the country first quarter GDP growth was borderline recessionary, just like we saw in 2011. We have now seen the “seasonally adjusted GDP” show some odd negative seasonal tendencies in Q1 that are not being adequately adjusted since the recovery began. Since I remain sanguine on the economy and bullish on the stock market, that leads me to believe that our economy will bounce back strongly in Q2 and Q3, just as it’s done over the past few years.

Getting back to Friday’s jobs report, non-farm payrolls grew by 223,000, equaling expectations while the unemployment rate came in at 5.4%, the lowest since May 2008. The U6 unemployment rate, which measures the unemployed and underemployed came down to 10.4% from 11% in March. Keenly watched hourly earnings only increased by 0.1%, keeping any wage inflation concerns solidly under wraps.

The best description I can give of this report is Goldilocks, not too hot and not too cold although some in the perma-bear (continually wrong) camp are hanging their hats on the older ages of those filling new jobs rather than how well dispersed the new jobs were across sectors. Stocks soared and bonds bounced back. Anyone left hanging on to a June interest rate hike by the Fed has to be convinced that is has barely a puncher’s chance of occurring and that while September may be on the table, it’s looking less than 50-50. The jobs market is solid and stable, but far from overheating. I think the Fed needs to see a very good Q2 GDP print in a few months coupled with at least two or three straight employment reports showing a minimum of 250,000 new jobs created.

If you would like to be notified by email when a new post is made here, please sign up, HERE.

Stocks Trying to Keep Bounce Going

The stock market ended last week with a very nice bounce from the lows seen on Thursday and I discussed in the last update. Market internals were fine, but certainly not great, so far. At this point, the most prominent stock market indices saw yet another pullback that couldn’t gather steam once it approached 5%. While very unusual historically, this has been business as usual since mid 2012.

The most important things to watch now are how stocks behave as this bounce continues, which it should at least a little while longer as well as if the bounce takes the Dow and S&P 500 back to the old highs. At this point, for a change, I do not have a firm opinion on how the next few weeks shake out. I want to take a wait and see approach. We have more than enough longs if stocks continue to rise, but I will not hesitate to trim positions if the rally looks crummy.

As you know, long dated treasuries have been our single largest position all year in our global macro strategy and that remains the case. As stocks began to bounce on Thursday and took off on Friday on the solid jobs report, bonds did not sell off. They continue to confound the masses on good economic news and now it’s time for bonds to make new highs for 2014.

If you would like to be notified by email when a new post is made here, please sign up, HERE.

Here We Go Again… Jobs Friday

Wasn’t it just yesterday that we were talking about the monthly employment report? Well, we’re here again! With back to back weak reports blamed on “weather”, stocks are set up to rally on a good report that gets past weather and a bad but not atrocious report that blames “weather”. It must be nice to have the “weather” fall back on. I may have to try that with clients. Credit a good quarterly report on our skills, but blame a bad report on the market.

14 of the last 15 jobs Fridays have seen stocks rally so that has to be the model for today. A big up opening should be a very short-term selling opportunity, but any dip remains buyable.

The “All Important” Employment Report

Today is Jobs Friday and the pundits are usually out in force predicting the number of non-farm payroll jobs created. That’s one area I usually steer clear of as it is probably the most volatile, inconsistent and unpredictable economic number of the month. What’s even more futile is forecasting the market’s reaction, which is sometimes a head scratcher.

Last month’s number was a complete and utter disaster, but the stock market barely shrugged and tested the highs the following week. I keep hearing people blaming one area that is totally defenseless, Mother Nature. It seems like whenever the pundits are stumped, they blame the weather. Given the trend, last month’s number is supposed to be an outlier that potentially gets revised upward today with at least a decent number. As I said, this is all just guessing. We will see shortly. Regardless of the number, I do not believe for a second that it will alter the Fed’s tapering course, although as you know, I vehemently disagree with any taper!

In yesterday’s pre-market piece, http://investfortomorrowblog.com/archives/1002, I spoke about a very short-term rally beginning and the market did not disappoint. I do not believe THE bottom is in, but the bulls can certainly push a little higher if they want to today. This remains a “sell the rally” market until we do a better job of rebuilding the wall of worry. Sentiment numbers are well on the way and should be there with another push to new 2014 lows.

Bears Take a Breather

Here is the link to the segment I did on Fox Business the other day with Lori Rothman and Adam Shapiro. This pretty much spells out what I have written here regarding my thoughts on the market this quarter. Thanks to Adam and Lori for letting me articulate my forecast.

http://video.foxbusiness.com/v/3151668123001/ingredients-for-ending-a-bull-market/#sp=show-clips

Stock market action over the past two days gives a glimmer of hope to the bulls for a short-term rally. I do not believe the final bottom is in as I have mentioned before, but this is one of those times where the bears look a little tired and should let the bulls make a little noise. Some of the sentiment indicators are showing some excessive very short-term pessimism that could support a move, but given that I remain negative for more than a trading rally, holding above this week’s lows are key to that scenario. If the major indices close below those levels, the bears should quickly attack and it could be ugly.

In a perfect world, which, seriously, when do I ever get; stocks would rally for a few days to a week and then rollover again to new lows. Those lows would see some panic, much more negative sentiment, but not as negative technical indicators than earlier this week. Then we would have the ingredients in place for a better rally. That all sounds really nice, but Mr. Market rarely gives us exactly what we want.

For now, if we do get a rally, I am keenly focused on the quality of the move. As I mentioned on Twitter yesterday, the biotech and transportation sectors look like they are worth a “poke” on the long side as long as they do not close below Wednesday’s low.

Everyone is focused on tomorrow’s monthly employment report after the disastrous one we had last month. My initial take is that this report will be decent and we will see upward revisions from last month. This report is so beyond volatile, inconsistent and unpredictable, let alone trying to interpret the market’s reaction beforehand.

Employment Report Key to Very Short-Term

On Friday morning at 8:30am the monthly jobs report will be out. This has become the most watched and heavily anticipated economic report of the month. Over the past year or so it has been the bulls’ ATM machine as the vast majority of those days have been up and very easy on the bulls with few meaningful losses.

The major stock market indices are in a very interesting position heading into Friday. Since Christmas they have essentially gone nowhere, changing the short-term direction to neutral. With the most seasonally strong short-term period of the year recently ending and market sentiment remaining at very dangerous levels, a “window of opportunity” as I like to call it has opened for a 5-10% pullback. On the flipside, the upside for stocks looks to be capped at 3-5%, skewing the risk/reward ratio in the bears’ favor.

With stocks pulling back to open the year and remaining below their highs, weakness from here that breaches the recent low on January 6 on a closing basis will likely accelerate selling into the eventual 5-10% pullback discussed above. However, if the employment report is construed to be very positive for stocks, the major indices should see a quick spurt to new highs before setting up once again for the 5-10% pullback later this month and into February. Either way, Friday should be a key day.

I am in the process of wrapping up my Q4 and 2013 report to clients and will hopefully finish up my 2014 Fearless Forecast sometime next week. I have a quick trip to balmy and tropical Chicago next week that hopefully is seamless. Yes. I know. Who plans trips to Chicago in the middle of January?!?!

Big Jobs Friday

The biggest economic report of the month is due out at 8:30am on Friday. It’s become even more closely watched if that’s possible because of the Fed’s focus on the unemployment rate for scaling back their massive bond purchases and then raising interest rates. It is widely forecasted that tomorrow’s number will be good to strong.

What becomes very interesting for me is how the market would view better economic news. Is good news still good news or will we start to morph into good news is bad news because Bernanke’s easy money policies will be ending. This is what normally happens during the maturation of a bull market. At the end, good news or strong economic data is reacted to poorly because the Fed is on the verge of raising interest rates to slow down the economy and control inflation. I don’t think we have that type of good news on the horizon anytime soon, but today’s reaction to good data will be instructive.