Another month, another employment report. The jobs number came in at 175K and 7.6% where the anticipation was 169K and 7.5%. It did a little bit better than projected given the weak number in the private sector on Wednesday. Is this a good number? No, it could have been a whole lot worse and 4 years into a recovery you can make a case it should have been a whole lot better. But this proves one thing; you can’t listen to the extreme right who were anticipating 110K.
Okay, you’ll remember from last week we were looking for a low originally on Friday with the jobs number way back on Monday and we were only a day off. On Thursday night I hypothesized we had good readings for a low but you never know what happens in a news event. We could have easily tested the low again with a wash and rinse but it didn’t happen. Instead we got one of the best market days in recent memory. Why? The number certainly wasn’t THAT GOOD. Perhaps traders were happy about the idea the rate went up to 7.6% from 7.5% which would indicate the Fed isn’t quite ready to pull the plug on the sugar just yet. The good reaction came AFTER THE LOW which means there’s a reasonable chance the recent correction is over.
As you know I’ve had quite a bit to say about the austerity program going on in this country. But the bigger picture is the Democratic think tanks are finally coming to the conclusion that austerity doesn’t work. They do have 69,000 bridges in need of repair. According to the Global Competitiveness Report released in May the US infrastructure rating has dropped from a 6.10 score in 2008 to 5.81 this year. A score of 1 is extremely underdeveloped while 7 is top score. More importantly, we were rated 7th best in the world 4 years ago and now only considered 14th best in the world. In another new report US bridges scored a C+ by the American Society of Civil Engineers due to a lack of planned funding and inadequate maintenance. One engineer in the study suggested now is a good time to invest in repairs due to low interest rates. I suppose Congress hasn’t studied that bond chart carefully enough.
What usually happens is state and local governments pick up the tab but so many have problems balancing their own budgets so in normal times Congress picks up the difference. As you know they aren’t doing that now.
They are also cancelling those NIH grants we discussed last week. It was announced this week they are going to lose the 700 grants and $1.7 billion in funding. That takes care of infrastructure and future technology competitiveness.
Finally there was a big report on Thursday in the Huffington Post that a key Democratic think and has come to the conclusion they are taking the ‘grand bargain’ off the table. The Center for American Progress is walking away from idea of negotiation with the right on the ‘grand bargain’ as a means of deficit reduction. They want to see Washington get back to an agenda where the focus is on growth as opposed to deficit reduction.
The Obama administration does not have to follow this lead but if they don’t and things don’t work out they run the risk of candidates distancing themselves in the midterm elections. But I view this as a change in posture which will influence both houses of Congress and the President. It means the debt debate has the potential to get nasty. I’ve heard the country is okay with the current deficit configuration until September. Know what else kicks in at that time? Our big time windows. They should get back to growth and start fixing some of those bridges. What are they waiting for, the Brooklyn Bridge to crumble?
This is a sneaky bull and markets were looking for an excuse to rally on Friday.
You have 2 great reasons for a turn here. Number one is we have a 161 leg which if I showed you the intraday qualifies as an abc down where c is 161 of a as measured from the high. Then it held the 50day which you can see has the buffer all throughout this year. How many times can you go to the well? One of these times it’s not going to work. But traders will keep trying until it’s proven not to work. This might be the last one. There’s no reason not to go with this buy the dip mentality because people waited until it got to the exact right spot.
You can take the contrarian view that it’s all too easy, too predictable and that’s going to spell trouble for those adding on because the market is never supposed to make things easy. You would be right with that kind of thinking. But in a raging bull there will be some doubters and that’s what makes the bull so sneaky. But if it’s this easy and it works next time people are going to continue to think it’s easy and they’ll end up getting burned. I know all of this sounds elementary dear Watson but this is the exact kind of thinking when it comes to financial markets. Don’t be surprised if the net result of this bounce gives us some sectors that hit new highs and others that don’t confirm. It all depends what you trade and how you get positioned. See this nice candle configuration on the SPX? Now look at the HGX. It’s not as good and it has much further to go to get not only back to the top of the range but pierce through to set a new high. If I’m paying close attention to only these 2 charts, I already see the potential for bearish non-confirmation.
If we really want to press another scenario, the HGX certainly looks like an ending diagonal triangle, doesn’t it?
If that’s the case we still could be in for one more high as its probable we have waves 1-3 already in place. If we do get the next high and it only marginally takes out the prior high then what I just told you about going to the well one too many times will kick in on the next round. Traders may get away with it this time. The takeaway is the 50dma buy signal is attracting a lot of noise and this has to be late in the game.
At the end of the day, I see a continuation of what started on Thursday with upper testing this week. Coming up later this month in a couple of weeks is the June seasonal change point. That point on the calendar usually produces something important so keep close tabs on any turn that materializes around the 21st. The turn we have now could conceivably create a rally that peaks around that time.