Sell The News

Not much has changed in the stock market since last week as volatility continues to be historically low. While the S&P 500 poked above the recent range on Friday, the rest of the major indices weren’t exactly in line. That’s not a big deal. Small caps looked like they were getting ready to step up, but we haven’t seen signs of confirmation just yet.

Two things I did find interesting were the April employment report, released on Friday as well as the French elections on Sunday. 211,000 new non farm jobs were created in April which came in better than expected and further supports my thesis that Q1 has become habitually weak. 211K is also significantly above April 2016 so on the jobs front, the economy is improving.  In France, with both major parties left out of the final runoff, centrist Emmanuel Macron soundly defeated Marine LePen, very much as expected. Even the crummy pollsters couldn’t screw this one up.

I noted on Twitter late last week that it seemed like stocks had fully priced in a decent employment report as well as Macron victory. With a much better than expected jobs report, stocks should have rallied much more. And in fact, I attribute the afternoon strength to investors covering shorts (bets against the market) and getting longer into the Macron victory. It certainly seemed like “everyone” wanted to own stocks before the weekend, which is very different behavior from recent Fridays.

While people are celebrating Macron’s win, the markets should respond without much fanfare. Should stocks rally at the open on Monday, I would view it a gift of a selling opportunity. But really, anything other than a selloff at the open may be a short-term selling opportunity as stocks would not be responding favorably to good news.

This is not the time to chase the stock market!

I think the upside risk is 500 points higher and the downside is at least twice that. Taking some profits here is not a bad idea or at least protecting the downside.

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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…

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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.

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Another “V” for the Bulls… Must Run from Here

As I have written before, since mid 2012 the stock market has seen more “V” bottoms than in all previous years combined. “V” bottoms went from being very rare to becoming the norm. With each successive low, investors are changing their buying behavior to accept the “new” behavior as the norm. In my view, this is setting up the masses for yet another 2000-2002 or 2008 style wealth decimation.

So now that we have yet another confirmed “V” bottom, which for full disclosure, I continue to use as trading opportunities, where are the markets headed? Two days ago, I wrote about the markets lacking the warm an fuzzy feeling. While I remain fully invested, I am dancing closer to the door than I have in a while. The bulls must take the major indices to new highs right here, meaning this month. Any failure to see new highs and subsequent rollover to the downside should result in a full fledged 10%+ correction. And even if we do see new highs, there needs to be higher conviction. Market internals are not positioned strongly and need to improve dramatically. By that, I mean the number of stocks advancing and declining as well as the volume in those stocks. We also need to see the number of stocks hitting new highs expand on any new high in the major indices.

For now, the ball is in the bulls’ court and they must run hard. The monthly employment number hits before Friday’s open and I am looking for a “much ado about nothing” reaction. After increased volatility over the past week, it would be a good sign to see a few quiet days in the markets.

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Economy “Booming”

288,000 NEW jobs created in April.

Unemployment rate plummets to “only” 6.3%.

The U.S. economy is back!

Does it feel like that to you or your friends?

My thesis since the crisis began has been that post financial crisis recoveries are frustrating. They tease and tantalize on the upside but rarely deliver. GDP growth never hits “escape velocity” and unemployment remains stubbornly high. With the government printing a 6.3% that’s hard to still say “stubbornly high”.

Digging into the details a little more, the labor force participation rate fell to 62.8%, the lowest level since 1978. Almost 1 million people left the labor force. Zero Hedge wrote a good piece about this here.

With wages not growing and people giving up on looking for a job, this is the main reason markets are not celebrating the 288,000 number. Additionally, it seems like at least once over the past few years, we see a monthly print close to 300,000 new jobs created only to have cold water poured on it over subsequent months.

Remember, the actual news isn’t as important as the markets’ reaction to the news. Before you fire off an email to me that the Russia/Ukraine situation led to Friday’s underwhelming performance, stocks looked crummy in the pre-market minutes after the jobs numbers was released. We “should” have seen a huge up day in stocks and really bad day in bonds. That just wasn’t the case and yes, I understand that there were geopolitical events in the air as the day wore on. Monday could be a very telling day for the short-term.

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