- Jobs report just right, NKorea disarmament prospects provide solid upside catalyst. - 'Not since 1980's' statistics showing up in the jobs report. - Household survey says: 1.006M jobs added in February. - 224K manufacturing jobs in 12 months came back when they were never coming back. - SOX, NASDAQ leads the way. SOX is so successful it is almost at its upper channel line. - Will SP500, DJ30 finally come around to help the move? - Many stocks are extended, but looking for others that have had time to base to come up with some leadership.
Two words come to mind describing the market. I used 'resilient' to describe the market after the tariff fears and the Cohn resignation could not take it down. Friday the first word I said when the Jobs Report was released was 'goldilocks.' One of the other words (okay, a third word) was 'remarkable' when the prospect of NKorea disarming was broached.
The market proved resilient despite the headwinds, and with a goldilocks jobs report and the possibility of NKorea denuclearizing it proved it could defy the odds: SOX broke to a new high midweek, and Friday NASDAQ and NASDAQ 100 joined it as they all powered to new all-time highs. The other indices are not there yet, but the RUTX continues to scream higher and it will be there soon enough after 5 of 6 days sharply higher.
VOLUME: NYSE +6%, NASDAQ +1%. No great shakes but NASDAQ moved farther above average though NYSE remained low.
ADVANCE/DECLINE: NYSE 2.8:1, NASDAQ 2.8:1. Not huge, but the upside A/D has been very solid to very good during the run higher.
Jobs are 'just right'
Why the goldilocks moniker? Because it gave the market everything it wanted. Much stronger than expected jobs created, a jobs mix not seen in the 8 years of the prior administration, jumping participation, record lows in minority unemployment, a rising workweek, and . . . wage growth lower than expected. For the market, that is goldilocks.
Wages are unfairly and wrongly labeled as impacting inflation. That is the Phillips Curve myth. However, given that the Fed is controlled by those from Princeton versus those from Chicago or Austrian scholars, the Phillips Curve is the idol the current Fed worships. Thus the market knows that what is pleasing to the PCurve keeps the Fed calmer.
Shades of the early 1980's: yes, history does repeat in economics as well.
Before I go into the jobs report details I want to note one thing: the number of workers added to the workforce. +806,000. That is the highest since June 1983. That is a significant year. The Reagan Emergency Economic Recovery Act was enacted and the benefits were showing up. After a decade of economic dormancy during high tax and high regulation policies had the rest of the world and even many in the US thinking the US would no longer be a world growth leader, the regulations were rolled back, taxes were cut, tax incentives to invest were in place, and the economy took off. GDP surges, jobs surges, earnings surges, stock surges. Indeed, in one month in that recovery 1,000,000 jobs were created.
The most recent cycle is matching that prior one. A decade or more of anti-growth policies in the form of more regulations (yes, Bush was a regulator and a taxer with poor economic policies, and Obama was worse by a factor of 10) had the US economy again in a no-growth zone. The prior administration excused its poor performance with the old 'things were so bad of course you get a weak recovery' lie (when the opposite is true -- when you use the right policies) and the 1970's 'hey, we just cannot grow the way we used to' nonsense.
No, when you enact the right policies in our system you get growth. Yes we have strayed far from capitalism, so much so that when we have periods like the 1970's and 2000's to 2016 where we move even more toward socialism, capitalism gets the blame. Yet when we move again away from socialism and back toward more free enterprise, i.e. less government regulation, letting people keep more of their money -- in other words getting back to freer markets where people have the incentive to take risk and invest (improving the risk/reward equation) -- we see economic activity jump, jobs are created, the standard of wealth rise. Wages are still lagging, but they will come -- IF we stay on the path of incentives that foster investment in the US and thus the creation of new companies out of new ideas, new technologies, and new inventions. It happened in the 1980's and into the 1990's, and there is no reason it cannot and should not happen again.
Now, on with the countdown.
The Jobs Numbers
Non-Farm Payrolls, February: 313K vs 210K exp vs 239K prior (from 200K)
Unemployment: 4.1% vs 4.0% exp vs 4.1 prior. Black unemployment: 6.9% versus 7.8% January. Another record low, smashing the prior record low. Hispanic unemployment also at a record low.
Household survey: 785K jobs added Unemployed: +22K
Full-time jobs: 729K, a near record (794K September 2017) Part-time jobs added: 277K Total jobs added: 1,006,000. That is the largest monthly gain in the 2000's and harkens back to the mid-1980's when under Reagan the US produced over 1,000,000 monthly jobs but that was via the Non-Farms number, the company reported numbers, not the household survey.
Wages: 0.1% vs 0.2% exp vs 0.3% January. 2.6% year/year versus 2.8% (revised from 2.9%). This was the 'light inflation' aspect of the report that let the market appreciate the other good numbers.
Average Workweek: 34.5 vs 34.4 expected vs 34.4 January (from 34.3) This is very welcome and out of this the higher wages will emerge. Remember, under the ACA workers with more than 29 hours/week were subject to the tax. With that eliminated (less regulation, right?) workers are free to work as many hours as they can, and employers will let them work as many as they want because there is no additional tax for letting someone work.
I bet you NEVER heard it put that way did you? The ACA taxes work. If you work too much you are taxed. The government created a disincentive for employers to let its employees work full time. And then the government complained to companies as to why wages were lower (the tax) and why employees were unable to work as much (the tax).
Kind of like our entitlement system: if you actually work too much, you get a lot less. So, people who are anywhere close to that level of work won't do it or else suffer a lot more penalty from losing benefits from working 'too much.' It is not their fault; the system was set up that way and they are making a rational economic decision. To avoid this, why on earth would you make benefits for not working available to someone who is fully able to work? Our system is full of reverse incentives created by people who wanted to help out but had no earthly concept of economic cause and effect. Or human nature for that matter.
Participation: 63.0%, +0.3% mo/mo. This is one of the biggest jumps in participation since 2016. Recall rates were heading lower, and lower, and lower under the Obama administration because why? The incentives were not to work. "You see, there is only one constant. One universal. It is the only real truth: causality. Action, reaction. Cause and effect."
The Merovingian, aka the Frenchman in 'The Matrix Reloaded.'
Workers entering the work force: 806,000. As noted, the highest since June 1983 as the US embarked upon over 20 years of remarkable expansion.
This is where the jobs are:
Construction 61K Manufacturing: 31K (224K 12 months, greatest since 1998; 263K since election) Retail: 50K Professional: 50K Mining: 9K Information tech: -12K
This report was termed by Rick Santelli as 'great.' Rick doesn't put out words lightly. Forgive me; I have to say it: is America getting great again?
THE MARKET
THE CHARTS
NASDAQ was up sharply and put in a new high, but have to go with SOX first as it led the way. This is not just another move. The indices defied history in moving to higher highs. This does not mean that SP500, DJ30 have to hit new highs, but there is strength showing that is not usual for these patterns.
SOX: SOX edged to a new high midweek, then Friday sealed the deal with a gap and rally. Nice move and SOX is clearly the market leader. It set up a potential head and shoulders top but blasted that apart with this last rally, turning a potential negative into just another rotation in the uptrend channel from the fall. It got dicey early February, but with many chips selling ahead of the market, they had already formed bases and were ready to lead. That said, SOX is now closing in on the top of its channel, closing at 1431 with the upper trendline at 1445 to 1450. Success means you have to test at times.
NASDAQ: Gap and rally past the January high, closing out at the high on rising, above average trade. NASDAQ defies the typical selling pattern thus far. New highs are no guarantee they have to hold, but it has plenty of leadership including many chip stocks.
RUTX: Not a new high but a strong 5 of 6 sessions has it past the 78% Fibonacci retracement and on the way to the high (1616, closed at 1597). As with NASDAQ, the 78% level did not stop the move though it still could form an ABCD top given it is below the prior high. Just observing and noting that is still a possibility, but the small caps are acting very positive, suggesting the economics are better.
SP400: The midcaps broke through a resistance level themselves Friday, clearing the November/December levels as well as the 50 day SMA and the 61% Fibonacci retracement. Already right at the 78% level (1951) where there is price resistance as well. That said, it is following and if the others move up, it does as well. It is not helping out, however, and if things falter it has its own ABCD pattern that could lead to some interesting downside.
SP500: A definite laggard, and though it was up, volume was still tepid as SP500 matched the late February peak. It is a pattern similar to what NASDAQ showed and rallied from so it is not necessarily a bag of chopped liver. Perhaps its time will come this week and it follows in NASDAQ's footsteps after SOX hits the upper channel line and needs to take a breather along with NASDAQ.
DJ30: Could not even muster a move to match the late February high a la SP500. Stalled at the 50 day SMA on a bit better trade, though nothing near average. Even the DJ20 transports are matching the late February high right now.
LEADERSHIP
The same groups keep leading higher: Chips, FAANG, biotech, tech.
Chips: A banner session of course. LRCX, AMAT, TXN, QRVO, SLAB. Perhaps a bit overstretched in some cases while others are still solid with room to run.
FAANG: NFLX surged to another higher high as did AMZN. FB overcame a report that usage was down 24%; FB still does not look great. AAPL rallied to match the February and January twin peaks. GOOG gapped and rallied past the late February peak and is at the upper gap point from the first big and nasty gap lower to start February.
China: Quiet though BIDU put in a good move. BABA up on the week along with QIWI, while HTHT, SINA, YNDX were quiet or down to end the week.
Drugs/Biotechs: Mixed but still solid. Some are testing already after good moves, others starting upside. AMGN rallied well Friday. BLUE added upside all week. PTCT looks great. ARRY taking a pause. INFI started back upside.
Software: RHT added more all week but we decided Friday to take the last of a big 450%ish gain. FFIV is trying to hang on at the 20 day EMA after flopping to there Thursday. MSFT at a new high on volume Friday. VMW recovered on the week, but is at the 50 day MA and has slowed a bit.
Retail: Decent to struggling. DDS remains solid but COST, ROST wandering. JWN at the 50 day MA in a test. DLTR bombed lower on the week. TGT sold through the 50 day MA's. Not a great week for the retail sector.
Financial: JPM bounced from the 50 day EMA on the week as did BAC. WFC is trying its hand at a double bottom from the 200 day SMA. GS is again bumping at the January high as it slowly, slowing trends higher.
MARKET STATS
DJ30 Stats: +440.53 points (+1.77%) to close at 25335.74
Nasdaq Stats: +132.86 points (+1.79%) to close at 7560.81 Volume: 2.3B (+1.32%)
Up Volume: 1.61B (+280M) Down Volume: 662.82M (-254.57M)
A/D and Hi/Lo: Advancers led 2.82 to 1 Previous Session: Advancers led 1.15 to 1
New Highs: 250 (+66) New Lows: 16 (-10)
S&P Stats: +47.60 points (+1.74%) to close at 2786.57 NYSE Volume: 812.332M (+6.20%)
A/D and Hi/Lo: Advancers led 2.75 to 1 Previous Session: Advancers led 1.37 to 1
Bulls and Bears: Of course there was a huge drop in bulls the past several weeks, with no real improvement the past week, as the market started back upside. SOX is up 3 of 4 weeks as sentiment plunged. NASDAQ the same. Sentiment is quite obviously a contrary indicator.
Bulls: 48.6 versus 48.1
Bears: 15.5 versus 14.4
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: 48.6 versus 48.1 48.1 versus 48.5 versus 41.9 versus 54.4 versus 66.00 versus 64.7 versus 66.7 versus 64.4 versus 61.9 versus 64.1 versus 64.2 versus 62.3 versus 61.5 versus 63.5 versus 64.4 versus 63.5 versus 62.3 versus 60.6 versus 60.4 versus 57.5 versus 54.3 versus 50.5 versus 47.1 versus 49.5 versus 49.5 versus 48.1 versus 50.5 versus 57.5 versus 60.0 versus 60.2 versus 57.8 versus 50.0 versus 52.5 versus 54.9 versus 51.5 versus 50.00 versus 55.8 versus 50.00 versus 51.9 versus 58.1 versus 58.7 versus 58.5 versus 54.7 versus 51.9 versus 56.3 versus 55.8 versus 49.5
Bears: 15.5 versus 14.4 14.4 versus 14.6 versus 14.4 versus 15.5 versus 12.6 versus 12.8 versus 12.7 versus 13.5 versus 15.2 versus 15.1 versus 15.2 versus 15.1 versus 15.1 versus 15.4 versus 15.4 versus 14.4 versus 14.4 versus 15.1 versus 15.2 versus 15.1 versus 17.0 versus 17.1 versus 19.0 versus 20.2
OTHER MARKETS
Bonds: 2.896% versus 2.872%
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.872% versus 2.879% versus 2.863% versus 2.879% versus 2.868% versus 2.799% versus 2.875% versus 2.893% versus 2.864% versus 2.866% versus 2.934% versus 2.952% versus 2.893% versus 2.873% versus 2.904% versus 2.913% versus 2.833% versus 2.857% versus 2.8577% versus 2.844% versus 2.813% versus 2.805% versus 2.707% versus 2.841% versus 2.792% versus 2.713% versus 2.72% versus 2.72% versus 2.66% versus 2.66% versus 2.639% versus 2.617% versus 2.656% versus 2.661% versus 2.618% versus 2.587% versus 2.535% versus 2.55% versus 2.559% versus 2.551% versus 2.482% versus 2.456% versus 2.463% versus 2.464% versus 2.405% versus 2.434% versus 2.412% versus 2.474% versus 2.485% versus 2.484% versus 2.501% versus 2.459% versus 2.398% versus 2.351%
EUR/USD: 1.2305 versus 1.2305
Historical: 1.2305 versus 1.24017 versus 1.2411 versus 1.2344 versus 1.23187 versus 1.22822 versus 1.21894 versus 1.21893 versus 1.23257 versus 1.2296 versus 1.2324 versus 1.22820 versus 1.23431 versus 1.2411 versus 1.25083 versus 1.2450 versus 1.23528 versus 1.22887 versus 1.22524 versus 1.2273 versus 1.2377 versus 1.24573 versus 1.2502 versus 1.2404 versus 1.2402 versus 1.23832 versus 1.24308 versus 1.24159 versus 1.24340 versus 1.23083 versus 1.22567 versus 1.22169 versus 1.2241 versus 1.2198 versus 1.22698 versus 1.22060 versus 1.20608 versus 1.19507 versus 1.19322 versus 1.19662 versus 1.20313 versus 1.20756 versus 1.20177 versus 1.20573 versus 1.2001 versus 1.1936 versus 1.1936 versus 1.18998 versus 1.18593 versus 1.18628 versus 1.18658 versus 1.18792 versus 1.18408 versus 1.17703 versus 1.1752 versus 1.17798 versus 1.18392 versus 1.17430
USD/JPY: 106.77 versus 106.41
Historical: 106.41 versus 106.105 versus 105.752 versus 106.359 versus 105.734 versus 106.03 versus 106.695 versus 107.381 versus 106.96 versus 106.886 versus 106.85 versus 107.581 versus 107.435 versus 106.294 versus 106.153 versus 106.782 versus 107.77 versus 108.669 versus 108.669 versus 108.797 versus 108.88 versus 109.33 versus 109.58 versus 108.651 versus 110.001 versus 109.46 versus 109.50 versus 108.77 versus 108.84 versus 108.601 versus 109.411 versus 109.033 versus 110.159 versus 110.159 versus 110.70
Oil: 62.04, +1.92. After breaking below the 50 day MA, Oil rebounded, but still in a lateral move along the 50 day MA the past four weeks.
Gold: 1324.00, +2.30. Gold has stalled out at the 50 day MA's as well, but is still in a pretty good pattern.
MONDAY
Big moves on all the indices with some to new highs, others still dealing with old highs. Many stocks have moved very well in their leadership rolls, e.g. chips. There are still stocks out there with potential to rally but some of the leadership groups such as SOX are nearing resistance and will need a test.
Those stocks that have sprinted won't present a lot of good new buys, but perhaps other areas that have lagged are getting the time they need to complete patterns and can join the move higher, giving it some breadth and perhaps taking the lead on the upside move.
With the market moving you want to continue moving into stocks that are setting up then breaking higher. If more continue to do so, then you will see RUTX, SP400 and even the large cap NYSE make new highs as well. Leadership will have to fan out more to get all to new highs.
There is also the possibility that SOX hits the top of its channel and falls along with NASDAQ, and that results in the NYSE indices breaking back lower. RUTX, SP400 still have potential ABCD downside patterns while SP500 and DJ30 have mid-recovery double tops. Have to keep that in mind if inflation worries come back around.
What may happen Monday is a bit of give back after such a huge end to the week on such an emotional high (jobs, NKorea). That would be just fine as we can use that perhaps to get some better entries on stocks that started to break higher but we did not want to chase on a Friday. Buy on Monday, sell on Friday, right? Okay, there are a few twists in there of course, but after such good happy time moves to end a week, then a bit of give back early week is normal. Again, we want to use that to enter well-positioned stocks that made a break higher but are testing it.
Again, the market was resilient, buying time, holding gains, letting patterns set up in the recovery. Then when good news hit, it was upside again. We bought positions on the week, had positions working, and are for the most part pleased with the moves. Some are just not performing with the market as is the case sometimes, and those are disappointing, e.g. LULU. Nice break higher, gave it back, holding support but could not participate Friday. Will see if money shifts back their way this week as we let winners work and look for new areas, preferably after a brief pullback, to put money to work.
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