- A sad Labor Day: jobs report shows the secular weakening of the American jobs market. - A confused session: bonds sell, stocks rally, gold rallies as jobs miss. - SP400 posts a strong break upside. Can it avoid the session-after clubbing? - Tons of data absorbed and the modest trend holds, but no guarantees.
After a couple of better months of job creation in terms of the headline numbers, August reverted more to the mean with 151K jobs created. Of course, the underlying data was worse than the headlines with some very telling numbers in terms of wages and hours worked. Suffice it to say those internal numbers were not great and quite frankly match the list of weaker data from the week ranging from Chicago PMI, pending home sales, and the ISM manufacturing report. These were quite bad, and all of the hopeful 'wait until next year' calls for the 3rd and 4th quarters to show an economic pickup just won't cut it.
With the jobs miss and weak internals, stock futures jumped in something of a bad news is good news reaction. Stocks started higher, rallied at the open, peaking a half hour into the session, at least in terms of the large cap indices. A fade to early afternoon cut the gains but a rebound the last two hours recovered some lost ground. The big cap indices didn't get back to session highs but they put in respectable gains.
The real action was in RUTX and SP500. Same action as the large cap indices except they didn't dip as far intraday, and their afternoon recovery took them to new session highs and to new rally highs. Impressive moves. NASDAQ gapped to a doji at the top of its August range while SOX gapped higher but closed more or less flat.
A/D: NYSE 4:1, NASDAQ 2.25:1. Blistering breadth as the small and midcaps jumped to higher rally highs, SP400 to a new all-time high.
Low rates benefit, in theory, smaller cap stocks. Money they need to grow is easier to come by so that makes growth easier. Of course we know that banks such as WFC and its CEO go on CNBC and tout how small business friendly they are, but we also know they are full of beans. I know bankers at WFC on a personal basis and they tell me they are not writing any loans for small businesses. No need to.
So, the theories are great, but reality is not. In the end, it is anyone's guess as to what drove stocks higher Friday. Bond yields rose even as the market supposedly priced in less chance of a rate hike in September and December (falling to 22% from 36% and to 55% from 59%, respectively). Financials, sensitive to rates, faded even as rates moved higher. Small and midcaps rallied even as higher rates imply loans are harder to come by.
As Lucilla told her brother the emperor in 'Gladiator,' the mob is fickle.
The mob is fickle, brother -- Lucilla, 'Gladiator' (2000)
The end result Friday is no change. RUTX and SP400 are taking a hand at leading higher, but you know what the market has done to indices that dared to break to higher highs: shot them right back down the next session.
Indeed, despite the jobs report and the 'bad news works because the Fed may be on hold longer' mindset, the stock indices did not race in the chosen direction. That leaves NASDAQ at the top of its four week range along with SP500 and DJ30 toiling in their lateral moves as well.
Perhaps the children along with SOX are the ones to lead the big indices higher. There are still very good leadership patterns in the market overall. If so, Friday was a good step to get that move started, but again, those indices have to survive the attacks on their success when next week comes around. Suffice it to say that Friday, while a positive upside development, did not eliminate the possibility that declining MACD and lower volume on these gains is indicating a top in the large cap indices. The market is still in the same situation of having to show it can make the break higher and make it stick.
NEWS/ECONOMY
And we were told Q3 would be better: a bad week for economic data.
Chicago PMI, August: 51.5 versus 54.5 expected versus 55.8 June. Sharp drop.
ISM Index, August: 49.4 versus 52.2 expected versus 52.6 prior. Falling back to contraction.
Productivity, Q2 Revised: -0.6% versus -0.5% first reported. Third quarter of negative productivity, something not seen in years.
Unit Labor Costs explode higher: 4.3% versus 2.1% expected versus 2.0% prior
Construction Spending, July: 0.0% versus 0.6% expected versus 0.9% June
Auto sales: Ford says the sales cycle has hit a plateau.
JOBS: disappoint after 2 stronger months as the sub-headings show the same serious issues.
NON-FARM JOBS, August: 151K versus 180K expected versus 275K July (from 255K) June revised to 271K from 292K.
UNEMPLOYMENT RATE: 4.9% versus 4.8% expected versus 4.9% July
AVERAGE HOURLY EARNINGS: 0.1% versus 0.2% versus 0.3% July. Year/year: 1.5%. That rate of growth is the worst annual rate in 32 months (2.75 years).
Many states raised and are raising the minimum wage, but they are eliminating the really well paying jobs in the economy, and thus the average rate earned is falling more than the rise in minimum wages.
AVERAGE WORKWEEK: 34.3 versus 34.5 expected versus 34.4 July (from 34.5)
BIG news here. How can the workweek be falling when jobs are created and there is supposedly this insatiable demand for more workers? Several factors.
First, we know the ACA (Affordable Care Act) is an hours worked destroyer. It pressures employers to limit workers logging more than 29 hours per week. If they work more they fall under the ACA's rules of providing insurance or paying fines.
Second, the mandated increases in minimum wages in many states has the perverse effect of raising wages but lowering the number of hours an employee works. There is only a finite pool of money in a business. If wages rise and nothing increases revenues to offset it, another area has to suffer. Businesses are loath to lose profits because in this economy so many are running on thin margins already. So, if required to raise the rate paid per hour, a way to keep labor costs the same is to lower the number of hours worked.
We reported this was happening at SBUX as employees are finding their work hours reduced as SBUX implements higher wages. It is happening elsewhere as the data shows, but SBUX is so interesting because it has championed higher minimum wages, even implementing them itself without a government mandate. Yet, it too must play by the same laws of economics every business experiences (outside of the monopolies that our government still lets occur today despite its claims otherwise). Thus instead of cutting Mr. Shultz' take home, they are simply reducing hours worked and becoming more efficient with a leaner staff. As purely anecdotal evidence, I have personally heard workers complain about not having enough staff on to properly run stores. Texas, California, Colorado -- the complaint heard is the same.
PARTICIPATION RATE: 62.8% versus 62.8% July Not in the workforce: +58,000 to 94.39M
Household Survey jobs created: 97K.
WHERE THE JOBS ARE: Same old story, just worse. Leisure and Hospitality: +29K Food and Beverage Service: +34K Professional/Business Services: +20K Government: +25K Retail: +15K Manufacturing: -14K Mining: -4K Construction: -6K Temporary: -3K (heralded in July as showing a turn was in progress)
Since 2014: +520,000 waiters and bartenders, -13,000 manufacturing workers There are now 9.93M more government workers than manufacturing workers in the US (22.21M versus 12.28M).
The US employment decline continues. Sure there are respites from the fade as in June and July, but even those months, as I showed when the reports were issued, did not show an increase in the number of breadwinner jobs.
The US labor force has morphed, under the restrictions from regulations and taxes, into one geared to create low wage service jobs that service other low wage workers. The US simply does not have the level of capital investment needed to create the new industries and technologies that drive higher wages and higher standards of living.
Moreover, even when there are good jobs, the industry titans such as Facebook's Zuckerburg, MSFT's Gates, AAPL's Tim Cook clamor for the importation of more and more STEM degree graduates from other countries using the US Visa system. They claim there are no US trained graduates to do these jobs, but that is simply incorrect. Tens upon tens upon tens of thousands of US degreed grads in the STEM fields (Science, Technology, Engineering, Mathematics) are in the US and unemployed. The industry leaders simply want to hire CHEAPER labor from overseas versus those trained at home.
Quite the irony is it not? Our leaders feel that such educations are so important they are shoving more and more free money into education every year to get more into college. That result? Higher college costs through inflation for one. Second, we have thousands of ready, willing, and able grads, but our leaders then allow thousands of foreign workers in to undercut them in salaries.
This is another election when fundamental change is necessary. If it does not occur, if we do not get back to unshackling smaller business to be the innovators and job creators they have been for over 200 years, then the changes in the labor market wrought over the past 20 years will become permanent until there is collapse and rebuilding.
THE MARKET
CHARTS
SP400: Have to lead with the midcaps because they rallied well and punched out a new all-time high. Nice gap and rally to close at the high and a new all-time high. MACD is trying to cross back through itself and turn upside. A solid move. Just as 7/29 was a solid break to a new high that was immediately sold. Just as 8/15 was a solid new high that was also immediately thrown back. Just as 8/23 was a solid gap upside that was reversed the next session. Don't get me wrong; SP400 is still trending higher, it just cannot seem to put together a several session rally.
RUTX: Similar session to SP400 though the small caps did not put in an all-time high, just a new rally high. This after an eight session lateral move at the 10 day EMA. A nice session Friday, but no definitive breakout. As with SP400, the Russell has its share of new rally high reversals that met a solid upside session with a day of selling. For now, however, RUTX keeps finding the buyers.
SOX: The clear market leader got a bit tired last week though it certainly looks somewhat rejuvenated Thursday as it broke higher off the 10 day EMA to a new post-2000 high. Friday a gap higher but could not hold it as SOX was the only index to close negative. Nonetheless, a solid trend up the 10 day EMA continued for a fifth week. Perhaps a bit extended, but many chips are still in very good upside patterns.
NASDAQ: Gapped to a tight doji of its own at the top of the four week flat lateral range. A bit better volume Tuesday to Thursday as NASDAQ tested the 20 day EMA with doji. Big names still look as if they can support a break higher, and the increased volume on that test of near support is not a bad indication.
SP500: Gapped over the 10 and 20 day EMA but still below the August highs in the most recent lateral move a 4 week flat range. Trying to stretch this lateral move sideways and set up a new move. MACD continues to slide lower as momentum is low. A lateral move sets up a better upside chance.
DJ30: Gapped to a doji at the 10 and 20 day EMA. Trying to put in a higher low at the 50 day MA's from last week. Not bad action, but DJ30 is in the same position with its own declining MACD and trying to stretch the move laterally, put in a solid bounce and break up that July/August double top.
LEADERSHIP
Big Name NASDAQ: AAPL gapped above the 10 and 20 day EMA on rising trade. Gapped close to a higher high then faded for a modest gain. Edging higher but needs to show the breakout. FB gapped, faded some, held some of the gain. NFLX continued its tight, flat move along the 10 day EMA. Gapped over the 10 and 20 day EMA, no volume. Still a good pattern. SBUX is still struggling after failing at the 200 day SMA.
Financial: Modest gains after losing some ground Thursday. Upside for the week, however, and a bit of a pause here is not bad with still good patterns, e.g. JPM working laterally over the 10 day EMA, GS and C doing the same.
Chips: Mostly another good week. Stocks such as MRVL, RMBS surged nicely. Others moved higher though not a blast off: MCHP, AMAT, NPTN. Others are setting up interesting possibilities, e.g. ON, NVDA.
Retail: Got a bit shaky into midweek but recovered nicely. JWN is still working a good pattern as is KSS. M, DDS, however, sold much farther. Some of the apparel makers were sold. LULU hammered, DECK down to the 50 day MA, UA breaking below the 200 day SMA and selling on volume. FL still looks great to make a move form a great setup.
Restaurants: Still some improving patterns but work to do for most. BWLD looks good. PNRA working on it. CAKE could set something up out of this pattern. EAT still in a nice 3 week flag test.
Software: ROVI jumped nicely off a test of the 20 day EMA into Thursday. BLKB not bad at all, forming an inverted head and shoulders the past two months, breaking higher. RHT gapped to the 50 day MA's on the high.
China stocks: BIDU gapped over the 200 day SMA to a doji. SOHU in a nice test of the initial surge; adjusting the buy point to get in if we can. SINA continues running upside.
MARKET STATISTICS
NASDAQ Stats: +22.69 points (+0.43%) to close at 5249.9 Volume: 1.462B (-6.5%)
Up Volume: 999.47M (+91.66M) Down Volume: 448.48M (-202.5M)
A/D and Hi/Lo: Advancers led 2.24 to 1 Previous Session: Advancers led 1.14 to 1
New Highs: 180 (+67) New Lows: 25 (-9)
S&P Stats: +9.12 points (+0.42%) to close at 2179.98 NYSE Volume: 803.2M (-3.03%)
A/D and Hi/Lo: Advancers led 4.04 to 1 Previous Session: Decliners led 1.1 to 1
New Highs: 219 (+102) New Lows: 13 (-8)
DJ30 Stats: +72.66 points (+0.39%) to close at 18491.96
Put/Call Ratio (CBOE): 0.96; -0.05. Busted over 1.0 a few times last week, now 5 over 3 weeks. Getting better but typically takes a few more to get a move going. That said, the indices are moving as RUTX, SP400 showed Friday, SOX on Wednesday.
Bulls and Bears: The sideways move in the market pulled bulls back below 56 and pushed bears to 20.6 from 20.2. Not huge moves, just a pause in the leg higher.
Bulls: 55.9 versus 56.7
Bears: 20.6 versus 20.2
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: 55.9 versus 56.7 56.7 versus 56.2 versus 54.3 versus 52.9% versus 53.9% versus 54.4% versus 52.5% versus 47.1% versus 41.6% versus 47.5% versus 45.9% versus 47.3% versus 45.4% versus 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%
Bears: 20.6 versus 20.2 20.2 versus 20.0 versus 20.9% versus 21.2% versus 21.6% versus 23.3% versus 24.7% versus 24.5% versus 23.8% versus 23.2% versus 23.5% versus 23.8% versus 23.7% versus 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%
OTHER MARKETS
Bonds (10 year): 1.601% versus 1.57%. The pattern is tightening up a bit as TLT still holds the lateral move over the 50 day EMA. Testing the 50 day EMA late week, showing a doji at that level Friday. The TLT pattern still shows a bullish setup consolidating the June to early July bond rally.
Historical: 1.57% versus 1.58% versus 1.57% versus 1.57% versus 1.62% versus 1.58% versus 1.56% versus 1.54% versus 1.58% versus 1.53% versus 1.55% versus 1.57% versus 1.558% versus 1.51% versus 1.56% versus 1.51% versus 1.54% versus 1.59% versus 1.585% versus 1.503% versus 1.54% versus 1.558% versus 1.51% versus 1.46% versus 1.50% versus 1.51% versus 1.56% versus 1.57% versus 1.56% versus 1.558% versus 1.58% versus 1.56% versus 1.59% versus 1.58% versus 1.53% versus 1.47%
EUR/USD: 1.11545 versus 1.11943. Euro sold to the 50 day SMA then started a bounce Thursday. Friday the EUR surged but then reversed to close back below the 200 day SMA.
Historical: 1.11943 versus 1.11572 versus 1.1146 versus 1.11708 versus 1.11949 versus 1.12894 versus 1.1300 versus 1.13045 versus 1.3254 versus 1.13251 versus 1.1342 versus 1.13036 versus 1.12773 versus 1.11824 versus 1.11636 versus 1.11372 versus 1.11803 versus 1.1115 versus 1.1080 versus 1.10882 versus 1.1130 versus 1.1148 versus 1.1219 versus 1.1164 versus 1.1173 versus 1.10806 versus 1.10732 versus 109857 versus 1.0992 versus 1.0977 versus 1.1021 versus 1.1022 versus 1.1021 versus 1.10654 versus 1.1035 versus 1.1117 versus 1.1099
USD/JPY: 103.92 versus 103.226. Dollar is on the recovery, up 5 of 7 sessions off the low. Broke through the 50 day MA's on the week, extended the gain Friday. Pretty nifty double bottom off the June/July and August lows.
Historical: 103.226 versus 103.269 versus 102.965 versus 102.160 versus 101.808 versus 100.485 versus 100.306 versus 100.27 versus 100.297 versus 100.21 versus 99.843 versus 100.529 versus 100.953 versus 101.308 versus 101.864 versus 101.23 versus 101.857 versus 102.356 versus 101.832 versus 101.178 versus 101.256 versus 101.09 versus 102.599 versus 102.045 versus 104.679 versus 105.98 versus 104.731 versus 105.76 versus 106.05
Oil: 44.44, +1.28. After a harsh Wednesday and Thursday broke oil below the 50 day MA's. Rebounded Friday but nothing major.
Gold: 1326.70, +9.60. Rebounding off the early week selling. Held the July low and is rebounding, making it back to the 50 day EMA on the Friday close. This is an important move for gold to hold the more bullish pattern.
MONDAY
And even more data is now out. Jobs, ISM, Yellen/Fischer/Bullard at Jackson Hole. GDP. Earnings.
The market has trended slightly higher on this data but over the past 7 weeks has not made a significant break higher on SP500, DJ30, 5 weeks on NASDAQ. SP400 has trended slightly higher for 9 weeks then a good break higher Friday. Maybe this is the charm. RUTX is similar, though a bit better advance. SOX of course is the leader with a steady, albeit slow, move up the 10 day EMA.
Yes the data is behind the market, again, but surviving the data dumps are not enough. Something has to catalyze the buyers to take the still good uptrends and send them higher.
Leadership remains solid enough and there are stocks that have put in good moves that used some of the market lateral action to test and set up for potential new moves. With leadership still in position to move that means looking at more upside to take advantage of upside moves. Friday we picked up some AAPL and WMB, adding to our buys into positions on BABY, HIMX, NPTN, STX, VIP. Good stocks in good position and we are looking at some more this week.
Of course with the market still unable to make clean breaks higher and with momentum waning, you have to also be ready in the event the upside runs out of gas and rolls over.
Letting the upside run continue, ready if the move reverses. Friday was decent enough with no major negatives on the jobs report, but there were no major positives, at least across the entire market. As we have seen, doesn't have to be in order for the moves to continue, but it is always nice to see more power. Kind of like what our presidential candidates seek.
Have a great Labor Day holiday!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5249.90
Resistance: 5271.36 is the August 2016 intraday all-time high
Support: 5231.94 is the 2015 all-time high 5162 is the early November peak, 5176 is the December intraday peak The 50 day EMA at 5121 5100 from the April peak and early May peak 5042 is the March 2015 high 5008.57 is the early March 2015 post-bear market high 5007 is the 12/31 upper gap point from that big gap lower 4999 is the October upper gap point 4980 is the June 2016 peak 4969 is the April 2016 recovery high 4960 is the September 2015 intraday high, an important reversal point for NASDAQ. 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 200 day SMA at 4871 4836 is the March 2016 peak 4815 is the December 2014 peak 4811 is the November 2014 peak (intraday) 4774 is the January 2-15 high 4751 is the January 2015 lower high 4684 is the May 2016 test low 4637 is the February intraday high 4620 is the February 1 closing high 4615 from September 2014 highs, October 2014 upper gap point, late August 2015 low. 4574 is the June 2015 low 4517-4506 from the September 2015 and August 2015 closing lows 4485 are the twin July 2014 peaks
S&P 500: Closed at 2179.98
Resistance: 2194 is the August 2016 all-time high
Support: 2175 is the June 2016 high The 50 day EMA at 2155 2135 is the May 2015 all-time high 2130 is the June 2015 peak 2126 was the April 2015 prior all-time high 2120 is the June 2016 peak 2119 is the February 2015 intraday high 2116 is the November 2015 high 2111 is the April 2016 recovery high 2104 is the December 2015 high 2094 is the December 2014 high 2079 is the intraday all-time high from November 2014 2062 is the January 2015 lower high The 200 day SMA at 2056 2046 is the July 2015 closing low 2040 is the March 2015 closing low 2026 is the May 2016 low 2023 is the November 2015 low 2020 is the September 2015 intraday high 2011 is the September prior all-time high 1995 is the September 2015 recovery peak 1991 is the July 2014 high
Dow: Closed at 18,478.27
Resistance: 18,595 is the July 2016 peak
Support: 18,351 is the all-time high from May 2015 The 50 day EMA at 18,355 18,288 from March 2015 18,247 is the August 2016 low 18,168 is the April 2016 recovery high 18,100 to 18,181: interim peaks in the December 2014 to July 2015 range 18,016 is the June 2016 peak 17,978 is the November 2015 peak 17,600 is the rough bottom of the April to June range. The 200 day SMA at 17,553 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 2014 post bear market high 17,068 is the early July 2014 peak 17067 is the December 2014 low 17,063 is the June 2016 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
ECONOMIC CALENDAR
September 2 - Friday Nonfarm Payrolls, August (8:30): 151K actual versus 180K expected, 275K prior (revised from 255K) Nonfarm Private Payrolls, August (8:30): 126K actual versus 175K expected, 225K prior (revised from 217K) Unemployment Rate, August (8:30): 4.9% actual versus 4.8% expected, 4.9% prior (no revisions) Average Hourly Earnings, August (8:30): 0.1% actual versus 0.2% expected, 0.3% prior (no revisions) Hourly Earnings, August (8:30): 0.3% prior Average Workweek, August (8:30): 34.3 actual versus 34.5 expected, 34.4 prior (revised from 34.5) Trade Balance, July (8:30): -$39.5B actual versus -$43.0B expected, -$44.7B prior (revised from -$44.5B) Factory Orders, July (10:00): 1.9% actual versus 2.0% expected, -1.8% prior (revised from -1.5%)
September 6 - Tuesday ISM Services, August (10:00): 54.7 expected, 55.5 prior
September 7 - Wednesday MBA Mortgage Index, 09/03 (7:00): 2.8% prior JOLTS - Job Openings, July (10:00): 5.624M prior Crude Inventories, 09/03 (10:30): 2.276M prior