- Jobs bomb, building on the April rollover and following the rest of the economy lower. - Rate hike odds for June and July plummet, but not so sure the Fed will be that quick to knuckle under. - Unemployment rate drops to 4.7% as workers flee from the labor force. - Same old story: all May jobs were part-time as the economy lost 312K full-time jobs the past two months. - Stock indices do a credible job of recovering. - Large caps still at resistance. RUTX, SOX, SP400 likely ready to test a good rally. - Same groups still look pretty solid, and that is the rally's hope. - A test is likely, and the question is who will lead out of the test: growth upside or large caps downside?
Some big moves on Friday. Not in the stock market. After a shockingly bad Jobs Report stocks did a fairly good job of managing the aftermath. The big moves? Jobs. Bonds. Dollar. Rate hike expectations.
As you would expect after a 38K print for May jobs, stocks started lower. After the first half hour, however, the turned to a slow steady rise into the last hour. Only SOX closed positive on the session, but DJ30 and even SP500 put in credible recovery performances even if SP500 missed the 2100 level that so many watch by a mere 0.87 points.
VOLUME: NYSE -7%, NASDAQ -3%. No big surge in selling on the weak jobs, so no real dumping of shares and no churn as SP500, DJ30, NASDAQ bump against the April highs. That is a better scenario than volume rising as they bump those levels but cannot break through.
A/D: NYSE 1.2:1, NASDAQ -1.6:1.
JOBS: If it was not so sad it would have been comical watching the Administration trying to talk up an utterly pathetic jobs report.
Non-Farm: 38K versus 155K expected versus 123K April (from 160K). March and April revisions -59K
3-month average: 116K/month. Pathetic.
Harry Doyle (Bob Uecker): How many jobs did we get? 38K G** D*** jobs? Color man: You can't say 'G** D***' on the air. Doyle: That's okay. No one is listening anyway. 'Major League,' 1989
Unemployment rate: 4.7% vs 5% expected vs 5.0% April. Why so low? 458,000 left the workforce. Take away a half million people from the labor pool and you get a better unemployment rate the same way a company buys back stock and raises its EPS even if earnings were actually worse. Magic! Except -- 94.7M people are not in the workforce have no jobs.
Workweek: 34.4 versus 34.5 expected versus 34.4 prior (revised down from 34.5). The workweek just cannot gain traction and it is no wonder given the Affordable Care Act is such that it behooves companies to not work an employee more than 29 hours per week. That incentive is keeping the workweek lower . . . along with an economy that is nowhere near as good those against 'fiction peddling' are peddling.
Participation rate: 62.6% versus 62.8%. Big drop as 458K left the workforce.
Part-time workers due to economic conditions (cannot find a full-time job): +468K
Not in the workforce: 94.7M, +664K
Number of fulltime jobs since January: 0 Number of fulltime jobs lost the past two months: 312,000 Percentage of service jobs created of all jobs in May: 100%
Jobs breakdown: Construction -15K Mining: -10K Manufacturing -18K Temporary -21K
Healthcare +45K. The lion's share of jobs. Thank you Affordable Care Act, right? Professional and Business: +10K Food and Beverage +22K Retail +11K Government +13K. It takes a lot of people to enforce bathroom rules, to monitor bakeries to make sure they serve everyone, to collapse the healthcare system, to spy on every conversation of every man, woman, child, trans-gender person, etc.
As you can see, all of the jobs are again in the lower wage service areas of the economy. Services. 100% of the jobs gains. Basically you can say the US took a few steps back in the jobs picture.
Indeed, since 2014, the US added 455K waiters and bartenders, LOST 10K manufacturing jobs.
Insult to injury: Payrolls would have been negative but for seasonal adjustments.
BONDS
Ten year Treasury: 1.70% versus 1.80%. Bonds exploded higher, gapping through the April and May twin peaks. Bonds are now knocking at the early February high, the last high before the current four month trading range. Quite the breakout as the market trashes any chance of a June and likely July rate hike.
DOLLAR
As the rate hike chances faded, so too did the dollar's value. Supposedly this is good for US businesses. Then why was it down so much when business was so bad it was not hiring?
EUR/USD: 1.13668 versus 1.1149. Euro explodes higher off the 200 day SMA test. Over the February peak, taking back half of the losses sustained since the early May higher high.
USD/JPY: 106.55 versus 108.85. So much for breaking out of the downtrend. That breakout move had all but failed and then came the insult, slamming the dollar back down to the late April/early May lows. No breakout.
Jobs dive, bonds soar, the dollar dumps. Stocks? They sold but not hard, managing a fairly decent recovery.
SP500 closed just below 2100 and that had the correction tongues wagging. Could be correct as that is the April high and a potential double top with lower MACD, indicating slowing momentum.
NASDAQ shows similar action, also at the April high on lower MACD. DJ30 is not even at that level.
It appears the large cap indices are slowing at resistance. The small cap and midcaps, however, blew through the April peaks. That does not mean they won't test, but the money is moving their way, and they can test back toward the April high and still be in position to rally.
That will be the main question: will the small and midcaps test then rebound? If so, will they carry the large caps with them? Or, will the large caps stall and fall, unable to move past the April peaks?
Thus far the leadership groups are still working, and that has been the tell for the market direction. Biotechs and drugs struggled Friday, but they have good patterns and have started breaking higher. Software still looks strong. Oil as well. Financial stocks are of course weak after the terrible economic data, and while many discount them in the market's bigger picture, I would note that the market has performed better when they were setting up positive patterns versus when they suffer interest rate related drops.
Friday we didn't do much. We banked some solid 20% stock gain and 50+% option gain on SWN. That was it. We figured the market has to recover from what the jobs report dropped on it and thus the Friday direction may not be that indicative of next week. With the leadership groups holding up well, however, we were content to let our positions work.
THE MARKET
The large cap indices are at resistance from the April highs and elsewhere. The small, midcap, and SOX indices broke to higher rally highs and are a bit extended. Their test will be key as will the action of the large caps if there is a successful test by the smaller caps. There are still leadership groups performing nicely, and that is what has kept the rally alive.
CHARTS
RUTX: Sold back from Thursday's higher recovery high, but did cut the losses in half. Easily above the 10 day EMA after its 9 session run. Likely tests, and the April high (1154 closing) and the 10 day EMA (1148) are logical targets.
SOX: Continued its rally though with less power. Gapped to the session high, filled the gap, but then recovered some of the early gains. Long 15 session rally has SOX bumping the last trading range that held the June 2015 peak. About due for a test. 692 is the early December 2015 peak as well as the 10 day EMA (689).
SP400: Punched a new rally high Thursday, then faded Friday. Tapped near the 10 day EMA on the low, recovered to a more modest decline. Following RUTX and SOX higher, working nicely up the 10 day EMA.
NASDAQ: Posted a higher closing high Thursday over the April closing high but then gave it up Friday. Tested the 10 day EMA on the low, rebounded to cut the losses by the close. Nice double bottom bounce off the 38% Fibonacci retracement yielded this rally. Now it is at the prior high and experiencing some resistance from that level as well as the October through December trading range. Key test of resistance for NASDAQ.
SP500: Very similar situation to NASDAQ, at the April high that is also in the October through December trading range. MACD lower. 2100 is a level many watch as a key resistance point and thus far SP500 has not taken it out. That will embolden some sellers and they will likely try to sell it next week. Given the market is due a test that is okay. A lot will depend upon how the other indices test their higher highs.
DJ30: Just following along, still below the April high but in the upper half of the November through December range. Not bad action at all, holding at the 20 day EMA and trying to put in a higher low.
LEADERSHIP
Everything was more or less under pressure Friday post-jobs, but the same groups held their patterns and moves and look solid overall.
Oil: SWN surged early and gave us our initial target. NGL was up yet again. CWEI was holding up at the 10 day EMA just fine. WMB, UNT also holding nicely at the 10 day EMA. Overall just a solid group, holding their trends and moving higher.
Drugs/Biotech: Struggled but holding up. XLRN reached down to the 10 day EMA but rebounded to cut the losses. GALE gapped lower but then moved back up. EVHC lost some ground but is trending higher. EXAS holding fine. Basically not an up session, but taking a breather.
Financial: Struggled as interest rate hikes are deferred. MS, GS gapped lower, but both held support and rebounded to doji. BAC, JPM did the same, gapping, holding support on the low, recovering some lost ground. Not a total washout and we will have to see what Yellen says Monday.
Construction: Not bad. GRAM moved higher off its test, posting a solid 4.6% gain. MDR held steady at the 10 day EMA.
Industrial machinery: some good moves. DE gapped higher and cleared the April and May peaks. CAT looks very good right now.
Chips: Not bad at all. XLNX trying to break higher from a two week lateral move. MXL tested, but showing a doji at the 10 day EMA. QRVO up modestly after a nice Wednesday and Thursday move. AVGO gapped higher on earnings. NXPI testing the 10 day EMA after a nice two week run.
Software: Solid week. CYBR was flat on the day, but this after a solid Tuesday to Thursday rally. RHT was flat as well, but it too put in a good move on the week. VMW enjoyed a strong week, hitting our initial target along the way.
MARKET STATISTICS
NASDAQ Stats: -28.85 points (-0.58%) to close at 4942.52 Volume: 1.68B (-3.04%)
Up Volume: 520.83M (-639.17M) Down Volume: 1.14B (+591.43M)
A/D and Hi/Lo: Decliners led 1.6 to 1 Previous Session: Advancers led 1.61 to 1
New Highs: 71 (-15) New Lows: 33 (+8)
S&P Stats: -6.13 points (-0.29%) to close at 2099.13 NYSE Volume: 888M (-6.72%)
A/D and Hi/Lo: Advancers led 1.17 to 1 Previous Session: Advancers led 1.86 to 1
New Highs: 182 (+64) New Lows: 10 (+2)
DJ30 Stats: -31.5 points (-0.18%) to close at 17807.06
4 of the last 6 below 1.0. 19 of 26 over 1.0. They did their job, playing a part in bouncing the market. Now the extremes are backing off as you would expect. Even so, they are still fairly high readings after a solid move higher.
Bulls and Bears: As fast as bulls plunged the prior week they surged, jumping 10 points. Highest reading in 7 weeks (47.5). Bears fell, but not at the same rate. Back and forth action shows investment advisors are being fickle, right? They were caught napping with the move, as bulls tumbled to 35 just as the rally started. Now they are right back in, saying they knew it all along. While not at the 60 level that would condemn a rally, the big moves show how fickle the big money is right now.
Bulls: 45.4 versus 35.4
Bears: 23.7 versus 24.0
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: 45.4% 35.4% versus 40.2 versus 39.2 versus 40.2% versus 44.3% versus 47.4% versus 41.2% versus 45.4% versus 43.3% versus 47.4% versus 44.4% versus 39.4% versus 36.4% versus 34.7% versus 26.5% versus 24.7% 34.0% versus 29.2% versus 26.8% versus 28.6% versus 34.7% versus 36.7% versus 37.8% versus 44.9% versus 41.2% versus 45.4%
Bears: 23.7% 24.0% versus 21.7% versus 21.6% versus 21.7 versus 20.6% versus 21.7% versus 27.8% versus 27.8% versus 28.9% versus 27.8% versus 30.3% versus 35.4% versus 34.3% versus 35.7% versus 39.8% versus 39.2% versus 38.1% versus 35.4% versus 36.1% versus 35.7% versus 31.6% versus 29.6%
OTHER MARKETS
Bonds (10 year): 1.70% versus 1.80%
Historical: 1.80% versus 1.84% versus 1.85% versus 1.85% versus 1.83% versus 1.87% versus 1.86% versus 1.83% versus 1.85% versus 1.85% versus 1.85% versus 1.76% versus 1.75% versus 1.70% versus 1.75% versus 1.735% versus 1.75% versus 1.75% versus 1.78% versus 1.74% versus 1.77% versus 1.80% versus 1.87% versus 1.83% versus 1.83% versus 1.86% versus 1.94% versus 1.90% versus 1.88% versus 1.86% versus 1.95% versus 1.79% versus 1.77%
EUR/USD: 1.13668 versus 1.1149. The dollar strikes back with a gain, sending the Wednesday upside bounce in the euro back to the showers.
Historical: 1.1149 versus 1.1186 versus 1.1128 versus 1.1113 versus 1.1181 versus 1.1155 versus 1.1142 versus 1.1221 versus 1.1216 versus 1.1199 versus 1.1219 versus 13.1317 versus 1.13145 versus 1.1307 versus 1.13791 versus 1.4252 versus 1.13707 versus 1.13869 versus 1.1405 versus 1.1399 versus 1.14864 versus 1.14864 versus 1.1478 versus 1.15306 versus 1.1450 versus 1.1382 versus 1.1329 versus 1.1293 versus 1.1261 versus 1.2249 versus 1.1289 versus 1.1295 versus 1.1360
USD/JPY: 106.55 versus 108.86
Historical: 108.86 versus 109.99 versus 111.285 versus 110.233 versus 109.70 versus 109.72 versus 109.99 versus 109.25 versus 110.165 versus 109.985 versus 110.187 versus 109.073 versus 108.856 versus 108.65 versus 108.95 versus 108.47 versus 109.28 versus 108.343 versus 107.10 versus 107.41 versus 107.126 versus 107.312 versus 106.16 versus 106.33
Oil: 48.62, -0.44. Spent the week testing the prior week's gains. Modest loss Friday, closing just below the 10 day EMA. This even as the dollar was hammered. If the dollar stays lower, that acts as support for oil as oil is priced in dollars. The weaker the dollar, the more dollars it takes to buy oil, and thus the price rises.
Gold: 1242.90, +30.30. After slipping to the late March lows last week, Friday gold exploded higher as the rate hike odds dropped sharply. Back to the middle of the February to June range.
MONDAY
The carefully, if not foolishly, constructed meme to further raise interest rates received a sharp blow. Jobs are one of the Fed's main indicators prompting its new found courage to talk about hiking rates. Not hiking rates, just talking about it. Of course the Fed could dogmatically focus on the unemployment rate, but to do so reveals the Fed as totally mechanical and almost pandering to a false narrative. I mean, we all know why the unemployment rate is at 4.7%: almost one-third of the country is not working, and that group is a much larger portion of the actual working-aged group in society. Hey, if the other 7.4M people who are 'officially' unemployed decided to leave the workforce, unemployment would be 0%! Surely the Fed would hike rates then.
Yellen will talk Monday in Philadelphia and everyone will listen and watch closely. You know what? I think she sticks to her guns regarding hiking to get more ammo for when the next crisis arises. If she does not, what kind of fool would the chairman and her fellow FOMC members appear? They carefully construct the reasons for hiking, then one report and they go running as if a skunk snuck in the committee room? Of course Yellen could panic and revert to her nature, the one where she has the urge to migrate every year and coo in the mornings. One would hope not.
Thus, the market could be right back where it was pre-jobs in terms of rate hike expectations. All it takes is the chairman saying it was just one report and the hikes are still on track. Then the financials start to recover from Friday, and quite likely we see the same leadership groups continue to work. We may see the latter group continue to work regardless.
That said, near term the market still could use a test. SOX and RUTX are up nicely over the April highs and it is normal to test breaks through resistance. SP500 and NASDAQ are struggling at the April highs, a natural place to fade. As noted earlier, the question then becomes whether the large caps drag down the leadership indices, or if the leaders (SOX, RUTX) represent where the money is moving and pull the big names back up.
It is noteworthy that money actually moved back into equity funds last week after fleeing for its life just as the market bottomed for this current rebound move. Not a huge amount, but a net positive of $1.6B. Late to the party? Perhaps, but pulling that short money back into the upside is how rallies maintain themselves.
We are going to continue looking at the leadership groups of late, and if there is a pullback we want to use that as stocks rebound, if they do rebound. This current leg likely cannot rally much more before it needs to test, and if there is a further move higher we want to use it to bank some more gain. Then we let it test, see how the leadership groups hold and setup, see if any new groups emerge, and if so, play them on a bounce.
Of course, the market is still in that big 1.5 year top and this level for the indices is starting to tug on Superman's cape, so to speak. In other words, we have to exercise caution and watch closely as any pullback starts. What are the leadership groups doing? How are their stocks holding support? What is the overall market volume? Breadth? The economy is weak, jobs are rolling over to follow it, and the Fed likely still wants to hike rates. Heck, even if it does not hike that won't prevent issues relating to a weaker and weaker economy. So, we play the good stocks but we also have to recognize where the market is.
Have a great weekend! Enjoy graduations and early summer. We have another graduation party this weekend. It is a great time and everyone should make a point of sharing it with friends and family.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4942.52
Resistance: 4960 is the September 2015 intraday high, an important reversal point for NASDAQ. 4969 is the April 2016 recovery high 4999 is the October upper gap point 5007 is the 12/31 upper gap point from that big gap lower 5008.57 is the early March 2015 post-bear market high 5042 is the March 2015 high 5100 from the April peak and early May peak 5162 is the early November peak, 5176 is the December intraday peak
Support: 4920 is the lower gap point from mid-October 2015, the January 2016 lower gap point 4916 is the mid-November 2015 low 4899 - 4902 from the September 2015 peak, July 2015 low 4894 is the September 2015 closing high The March 2015 lows at 4843 and 4825 The 50 day SMA at 4845 4836 is the March 2016 peak 4815 is the December 2014 peak The 200 day SMA at 4810 4811 is the November 2014 peak (intraday) 4774 is the January 2-15 high 4751 is the January 2015 lower high 4637 is the February intraday high 4736 is the early January lower gap point downside, the last downside gap in the selloff. 4620 is the February 1 closing high 4615 from September 2014 highs, October 2014 upper gap point, late August 2015 low. 4517-4506 from the September 2015 and August 2015 closing lows 4485 are the twin July 2014 peaks 4471 is the January 2016 closing low 4425 is the late February intraday low 4363 is the February upper gap point 4352 is the March 2014 peak 4313 is the January 2016 intraday low 4292 is the August 2015 low 4212 is the February intraday low
S&P 500: Closed at 2099.13
Resistance: 2104 is the December 2015 high 2111 is the April 2016 recovery high 2116 is the November 2015 high 2119.59 is the February intraday prior all-time high 2126 was the April prior all-time high 2130 is the June 2015 peak 2135 is the May 2015 all-time high
Support: 2094 is the December 2014 high, the prior all-time high 2079 is the intraday all-time high from November 2014 2062 is the January 2015 lower high The 50 day EMA at 2061 2046 is the July 2015 closing low 2040 is the March 2015 closing low 2023 is the November 2015 low 2020 is the September 2015 intraday high The 200 day SMA at 2011 2011 is the September prior all-time high 1995 is the September 2015 recovery peak 1991 is the July 2014 high 1972 is the December 2014 low 1947 is the February 2016 intraday high, the late February peak 1940 is the January 2016 recovery bounce peak closing high 1913 is the early September 2015 closing low testing the bounce from the August selling 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 1891 is last week's intraday low prior to the miraculous reversal. 1872 is the September 2015 test low of the August low 1867 is the August 2015 low 1862 is the October 2014 closing low 1859 is the January 2016 closing low 1820 is the October 2014 intraday low 1815 is the April 2014 low 1812 is the January 2016 intraday low 1772 are the Q4 2013 highs and lows
Dow: Closed at 17,807.06 Resistance: 17,978 is the November 2015 peak 18,100 to 18,181: interim peaks in the December 2014 to July 2015 range 18,168 is the April 2016 recovery high 18,288 from March 2015 18,351 is the all-time high from May 2015
Support: The March low at 17,786 June 2015 low at 17,715 17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range The 50 day EMA at 17,635 17,351 is the September 2014 all-time high. 17,265 is a December 2015 closing low 17,245 is the November 2015 closing low 17,152 is the mid-July post bear market high The 200 day SMA at 17,131 17,068 is the early July 2014 peak 17067 is the December 2014 low 16,970 is the June 2014 former all-time high 16,946 is the June 2014 peak 16,933 is the September 2015 recovery intraday peak 16,740 is the mid-September peak and potential apex for a right shoulder to a head and shoulders pattern 16,736 is a prior all-time high from May 2014 16,670 is the December 2014 peak and the recent August 2015 relief bounce peak. 16,665 is the late August 2015 closing high 16,632 is the April 2014 peak 16,621 is the late February 2016 peak 16,589 is the December 2013 former all-time high 16,526 is the early January resistance 16,511 is the January 2016 intraday high 16,506 is the March 2014 peak 16,466 is the January 2016 recovery closing peak. 16,368 is the August 2014 low 16,117 is the October 2014 closing low 16,058 is the early September 2015 low 16,026 is the April 2014 low 15,855 is the October 2014 intraday low 15,766 is the January closing low 15,666 is the August 2015 closing low 15,450 is the January 2016 intraday low 15,372 is the February 2014 low 15,370 is the August 2015 low
ECONOMIC CALENDAR
June 3 - Friday Nonfarm Payrolls, May (8:30): 38K actual versus 155K expected, 123K prior (revised from 160K) Nonfarm Private Payr, May (8:30): 25K actual versus 160K expected, 130K prior (revised from 171K) Unemployment Rate, May (8:30): 4.7% actual versus 4.9% expected, 5.0% prior (no revisions) Hourly Earnings, May (8:30): 0.2% actual versus 0.2% expected, 0.4% prior (revised from 0.3%) Average Workweek, May (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5) Trade Balance, April (8:30): -$37.4B actual versus -$41.6B expected, -$35.5B prior (revised from -$40.4B) Factory Orders, April (10:00): 1.9% actual versus 1.6% expected, 1.7% prior (revised from 1.1%) ISM Services, May (10:00): 52.9 actual versus 55.4 expected, 55.7 prior (no revisions)
June 7 - Tuesday Productivity-Rev., Q1 (8:30): -0.6% expected, -1.0% prior Unit Labor Costs - R, Q1 (8:30): 4.0% expected, 4.1% prior Consumer Credit, April (15:00): $18.5B expected, $29.6B prior
June 8 - Wednesday MBA Mortgage Index, 06/04 (7:00): -4.1% prior JOLTS - Job Openings, April (10:00): 5.757M prior Crude Inventories, 06/04 (10:30): -1.366M prior
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