No, I'm not talking about the new movie with Paul Walker and Tyrese Gibson that opens this weekend. I'm referring to the stock market and your favorite stock market indices. You know them; they're the usual suspects. The Industrials, the S&P 500, the NASDAQ Composite, the Russell 2000, the Wilshire 5000, the list could go on. The pattern is nearly the same across the board. The huge ramp up has culminated in a major blow off this Friday on big volume. In essence the markets have risen too fast and too furious and they can't keep this pace up. (gosh, where have we heard that before).
I realize I've been waving the warning flag in this column for a while now. No, I'm not a bear. I'm just a bull that's been burned too many times by buying the top. It's a painful experience I don't want to repeat it and neither do you. Honestly, I'm extremely encouraged by the sheer breadth and depth that this rally has enjoyed. It warms my heart to see Wall Street welcome this new bull market into the world. Now we just need to nurture it along slowly before some angry bear swipes its legs out from underneath it.
Where is investor sentiment? It would appear it's gone from joyful to nearly giddy. The major averages are approaching or exceeding 52-week highs on the hopes, yes the hopes that the economy really is recovery. That in and of itself is not wrong. The stock market never trades in the here and now. It's a calculating machine that always trades on investors' hopes and fears of the future. You're not buying that stock on what the company is worth today but on what an entire market thinks that company will be worth down the road. Oh sure, there are always fluctuations based on news and events and the overall economic climate but that's just part of the game. My concern is that investors are setting themselves up to have their hopes painfully popped if corporate profits don't improve the way we all want them to at July's Q2 earnings announcements.
Thankfully, the Friday morning jobs report offered traders some really good news. Payrolls fell by 17,000 jobs last month. Many economists had been looking for a drop between 30,000 and 48,000 in May. While this is good news it was eclipsed by even better results from the government's revision of April's 48,000 drop in jobs to a flat month. This is a MASSIVE improvement over February and March labor numbers.
Why then, if the jobs report was so good, did the markets fail to hold their early morning gains? Ah... that is the question. Frankly, I think it's the beginning of the profit taking we've been waiting on. The market needs to consolidate. If we can only get a few good down days it will provide a much better entry point for new highs later in the month. The trouble is investors are so fearful of missing the next bull market that they're liable to buy every dip, which will slow the consolidation we need to experience. That's not necessarily a bad thing but it can just slow the whole process down.
One of the most discernible warnings that I continue to draw to your attention is the bullish percent numbers. They have spiked even higher from Thursday's readings. The numbers listed in the table below are approaching or exceeding FOUR-YEAR EXTREMES for the markets. I keep saying that they can go higher but we're quickly running out of room. These results are merely a reflection of the amplitude of the rally's strength, which is a strong positive for the bulls but their extremes forecast a storm ahead that short-term traders can not ignore.
Best bring your umbrella. Summer storms can be as brief as they are thunderous. Thankfully there is usually a rainbow on the other side.
Lots of tables at the site. Just click on the link:
Market Data 
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