Positive news brings bullish reaction despite taper threat

Fibonacci Forecaster

Was it a surprise the jobs number came in at 203,000 and unemployment rate at 7%? I thought everyone was worried about the taper. It didn’t look that way as futures and then the market surged on Friday. For once this number was decent, not because it was consistent with the monthly average but the biggest gains came in professional and business services (35,000), manufacturing contributed 27,000, health care 28,000 while retail was only 20,000. If they anticipated 180,000, the overage is attributed to retail and finally we have an economy that might begin to create jobs other than retail and food/beverage.

That’s a good thing because fast food workers in 100 cities walked off the job on Thursday seeking a minimum wage of $15 per hour. See what happens when one community (Sea-tac) makes it a law? We’ve discussed why they can’t make a $15 minimum wage; it’s absurd. I go into Burger King here and there to get a couple of hamburgers for a buck each. But there’s no way people will pay an extra 50 cents to a dollar for a tiny hamburger. If they don’t do that, they have to start laying off people.

The problem isn’t so much the fast food workers want more money as it is there are skilled jobs sitting wanting because people aren’t qualified. You can’t get a raise just because you want one; the marketplace sets the price on a worker. That’s how our system works. I understand Obama wants to raise the minimum wage to $10.10 an hour. This is what any Democratic President will attempt to do. I’d much rather see some leadership to get the infrastructure working again. These are themes we’ve covered in this space for the past three years. What bothers me is I have to write about it again and again because nothing ever seems to get done in this country.

The other big news of the week was the GDP coming in for the third quarter at 3.6%, nearly half of which was a buildup of inventories that will challenge these companies in the fourth quarter. This is especially troubling because we don’t usually see the buildup of inventories until the end of a prosperity business cycle. Inventories are built up for one reason, an overly optimistic view of the economy. You never see a buildup at the end of a recession when people have an overly pessimistic view of things. We’ve had a weak recovery for the past four years where GDP has come in across the board in the 2’s and high 1’s. On another note, new orders for factory goods fell in October as demand for aircraft and capital goods weakened. The number dropped 0.9 percent after rising 1.8 percent in September. See what I mean?

This is December, and that means the seasonal aspect is highly favorable to bulls. Nevertheless, after three strong months, traders don’t get a free pass. For the most part, it was a down week. What I can’t abide is how one day good news is bad news and the next good news becomes good news again. On the one hand, good news means the taper must be coming quicker. Then when they actually get a good jobs report, there is no word on the taper and the market surges. The fact of the matter is the Dow E-mini showed elements of a bottom by Thursday evening, and they were looking for an excuse to buy.

To the uninitiated, we teach clients to look for the relationship between the first F and last L leg of a pattern. Many times it will have a golden spiral or Fibonacci relationship. In this case the F and L were 61/161 to each other.

The surge was actually a lower probability and while they didn’t get a new high in the Dow due to activity in the financial arena the NDX and NASDAQ did hit new highs even as the NASDAQ was marginal and now is still setting its sights on the big 4100 target we’ve discussed for the past three years.

If you get nothing else out of this report the takeaway is NASDAQ 4100. That should make life simple enough. But here are two other conditions to be concerned about. For the most part, last week the equities were down as was the Greenback. We like seeing a currency appreciate with a stock market because it represents the culture becoming wealthier. Obviously the flip side is when the currency declines with the stock market. That’s not good. If it’s just a few days, no big deal. But if it becomes a trend, it means there’s some underlying problem. To me the fact that fast food workers in 100 cities could cause such a stir is problematic. You look at every recovery we’ve ever had from deep recession and I guarantee you the solution wasn’t overpaying people who work for McDonalds.

Then we had a down week in Europe which is fine but by Friday the DAX needle didn’t move much but the FTSE did. If you’ve noticed the Brits have a great sense of humor in addition to being highly pragmatic. The FTSE held 61% and the 200dma so I’d go with it. Since nobody should’ve expected these markets to go straight down during December we should see some element of the Santa rally this week. Right now it’s the FTSE leading to the upside in Europe which also might mean whatever bounce is developing will not sustain. I can’t remember the last time we had the FTSE leading a rally. Recall earlier in the year it was the CAC that was leading which surprised just about everyone and especially the folks in France.

Next page: The Fed's next move...

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