So, 74,000 jobs? That’s a joke, right? Hopefully there will be an upward revision. I heard the media blaming the weather and that they expect January to be light as well because of the mother of all deep freezes. I heard an economist on television Thursday night suggest the economy had to be humming along at 300,000 jobs at this stage of the recovery. So for them to blame the weather is very disingenuous. The Labor Secretary tried to spin it any way he could, suggesting the three-month average was 174,000. Good for him.
The unemployment rate dropped mostly as a result of fewer people in the job market. The labor force participation rate dropped to 62.8%, the lowest reading since January 1978. Of course, the low number confused traders who now can’t gauge what the Fed is likely to do in the future. Right now I believe they are chalking it up to the weather. They might do nothing at the next meeting but are generally committed to tapering by $10 billion a month. Does that confuse you? Bernanke said they reserve the right to change policy if necessary. Traders didn’t know what to make of it, and that’s partially because the market was in a tight range leading to the event. So we didn’t exactly see the big movement either way.
That’s been the story of this market. Last week they tried to turn in up at 61 days off the October low. The Dow started off better, but it was the Nasdaq that made the new marginal high. On the day the market turned up, the BKX was flat. After the markets drifted back down, the BKX drifted up. Since the Nasdaq did make a new marginal high, the 61-day window did confirm even though it squeaked by. Other than that, we have a mess. The patterns are messier now than at any time in the past few months. We have divergences developing and haven’t seen those in a while.
We know the BKX made a new high, and the SOX did not. The Transports made a new high, as did the BTK, but the XOI did not. Health insurance stocks outperformed while the rest of the market stalled. The HGX barely made a higher high. Here’s the bottom line: Until you get evidence to the contrary, the larger degree trend remains your friend.
Where do I see this market going? It was easy to be bullish on Tuesday, not so much by Thursday, but we remained so because the odds are greater the market will be peaking around Jan, 17 than inverted. That being said, we still have the whole week to go.
Elsewhere, the precious metals are starting to look better and better. In the longer term, this is still early and while I wouldn’t elect to be short anymore, only if I had to make a decision would I be long at this point. At this point, I think the sector is in the setup mode for a good trading leg north. The only problem I have with this group is the XAU is not leading. In a sustained move, you want to see the stock lead the commodity and my concern is whether the long overdue correction for stocks starts soon, the XAU may not play along. If that happens, it’s likely to stunt the development of a metal rally. That is only speculation at this point because stocks could keep going, right?
That gets us to the key point. After a year where the SPX was up 29%, most of us have the feeling the stock market will continue this great run. It’s doing a fantastic job of lulling everyone to complacency. I actually heard one media personality state a 5% correction is coming and another say it would be normal for pullback here. When I hear stuff like that, I get very nervous so let me put it on the record that whenever the market finally does correct, maybe in 2016, it’s going to get hit harder than most people think. Seriously, this is not Burger King and there is no such thing as ordering a normal correction. Even if it’s short in duration, it’s likely to be intense and deeper than most would hope for. Personally, I don’t hope for a correction. I hope the market does go up until 2016. But I know its coming. Nothing goes straight up forever, and when it does hit there will be pain. We are due, wow are we due.
One of the charts most likely to be impacted by a stock market correction would be copper.
What you see here is a flat trading range or an attempted breakout. Copper has not participated in this to the degree its light years away from its high. Now after all this time it’s threatening to break out. Didn’t they get the memo the SPX was up 29%? This is another commodity chart that is a bellwether for the economy. My concern here is the same as it would be for the XAU. Would these charts continue a rally if the stock market changes direction? It’s a take you won’t read about in a lot of places because it’s still just speculation. Right now, if this is a bear market countertrend rally, Copper has gone about as far as its going, if it’s still in a bear market. When we talk about charts that should be close to countertrend moves we have the US Dollar.
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