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The weak jobs report this morning seemed to trigger a strong sell-off in the markets, even though the jobs report wasn't that bad. Economists were predicting a weaker number at +190k, and it came in at +151k. The unemployment rate dropped to 4.9% and hourly wages improved, so that was encouraging. But look at the big picture of the jobs numbers:
Today's number was less than the last three reports, but in line with the two previous reports which were lower than the 200k+ reports last summer. Looking at the longer term picture leaves us concluding that the creation of jobs is roughly flat, so why the extreme market reaction this time? This is just one more data point for the general psychological state of the market - nervous, pessimistic, and obsessed with the Fed. I even read once again today of the Fed's plans to raise interest rates four times this year - have we not debunked that nonsense yet?
Another data point is the reaction to LNKD's earnings report. Market analysts appear to be consistently pleased with the results, but the market focused management guidance that they would be developing some projects with longer time frames that would ultimately make LNKD a stronger company. The result was a bloodbath. LNKD traded down $84 or 44% off of Thursday's close, and this bled over into the tech sector in general. Again, it seems the "sky is falling" crowd is in control.
SPX lost $35 to close at $1880 and RUT closed down $29 at $986. Trading volume was slightly lower for the S&P 500 at 3.4 billion shares. Trading volume declined 5% on the NYSE, but increased 14% on NASDAQ, reflecting the tech sector massacre.
Support roughly in the neighborhood of the August flash crash continues to hold for SPX; in fact, today's close was about $10 above the flash crash lows and about $20 above the lows set January 20th. RUT closed at support set at its recent low of January 20th. I can't see the future any more clearly than you, but the price action so far remains consistent with the choppy retesting of support after the lows of the correction. This period of back and forth trading lasted about a month after the August flash crash.
It's hard, but try to put this craziness behind you and enjoy your weekend. Reflect on what's really important.
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Well, here we are again with one more extremely volatile day in the markets. SPX opened at $1907, traded down $35 and then reversed course and traded up by $41 to close at $1913, up $10 on the day. RUT traded similarly, closing at $1010, up one dollar. Volatility contracted a bit with the VIX closing down three tenths of a point at 21.7%. Trading volume popped up with 3.6 billion shares of the S&P 500 stocks trading today. Trading volume rose 16% on the NYSE and increased 13% on NASDAQ.
ADP reported an increase of 205 thousand private payroll jobs. This is an encouraging sign for Friday's jobs report. The ISM services index declined in January to 53.5 from last month's 55.8. But numbers over 50 denote expansion. Services are doing better than manufacturing, which is contracting.
January 20th was a significant day in the markets when the major indexes traded down to new lows, but then recovered significantly into the close. Those lows continue to hold today. RUT's intraday low today at $989 is very close to its intraday low on 1/20. SPX behaved similarly, hitting $1872 as the low today before recovering significantly. But SPX's intraday low on 1/20 was quite a bit lower at $1812. Was this the retest of the correction lows? Remember the trading following the August flash crash. We thrashed about for almost a month before resuming a bullish trend. However, the economic data may not justify a strong bullish trend this year. Perhaps the recovery from the correction is just for a sideways market, at least until the election.
The linkage of the stock market to oil prices appears to be weakening. Oil prices were up all day today, while the stock market traded down most of the day, recovering in late afternoon trading.
In the meantime, lay on the couch and get your feelings out. Tomorrow is another day on the roller coaster.
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Investors Business Daily declared Friday that the uptrend has resumed. I am inclined to agree, but I remain wary (old scars). SPX had a huge day Friday, so the bears were looking to take it back today, but it didn't happen. SPX opened at $1937, traded down as far as $1920, and then recovered to close at $1939, down one dollar on the day. This resulted in another of those candlesticks with a long lower shadow, a bullish sign. RUT had a similar day, closing down $3 at $1032. Volatility contracted just a bit, closing down 0.3 points at 19.9%. VIX has only been under 20% one other day this year. Trading volume fell off from Friday with 2.8 billion shares of the S&P 500 trading. Trading volume on the NYSE dropped 10% and trading on NASDAQ was also down 10%.
Construction spending for December increased 0.1%, not great, but better than November's 0.6% decline. The ISM manufacturing index came in at 48.2 for January, up slightly from 48.0. Recall that numbers on this survey less than 50 represent contraction, not expansion.
ADP's private payrolls and the ISM services report are due on Wednesday, and the jobs report will be issued Friday morning before the open.
I think we have seen the worst of the correction, but I don't see much to fuel the bulls for a strong rally, so we may be in for some choppy sideways trading for a while.
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SPX opened lower today and then accelerated even lower as oil prices fell. SPX closed down $36 at $1903, while RUT gave up $24 to close at $1009. SPX traded as low as $1897, but bounced during the last 45 minutes of trading. Significantly, oil prices didn't bounce. Perhaps this oil/stocks correlation is weakening, as it should. The glut in oil supplies is driving down the price of oil. That grossly overstates the slowdown in the global economy as suggested by lower demand for oil. Big oil has survived very low oil prices in the past; it isn't clear to me why this time is different. Virtually everyone else benefits from lower oil prices. However, the market for doomsday pundits is very strong. We need an ETF to trade them. I don't see the basis for the beginning of a bear market, but I could be wrong. I think it is more likely that we are in the test/retest cycle that is common immediately following the bottom of a correction (see the month of trading following August 24th last year).
Trading volume popped up today with 3.1 billion shares of the S&P 500 trading. Trading volume rose 4% on the NYSE and increased 13% on NASDAQ.
Volatility rose with the VIX closing up a little over two points at 22%.
One bullish data point I saw mentioned today: as we neared the close, it was reported that over 600k shares were queued up for close of market buy orders. That sounds like some traders are betting on the bounce. For the record, I considered buying SPX calls at the close, but thought better of it. That's too close to gambling for my style. Now watch it gap up higher in the morning...
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There have been several signs that we may have been settling into support and ready to bounce since the big intraday dip on January 20th. Today's price action appeared to be the follow through we were expecting. But remember that markets tend to come back and test the lows before truly heading higher, so be cautious. SPX had a huge 47 point day, closing at $1940. RUT followed the lead with a gain of $32 to close at $1035. Volatility contracted with the VIX losing over two points to 20.1%. There was probably a lot of short covering and trading volume bounced higher with 3.8 billion shares of the S&P 500 stocks trading today. Trading on the NYSE increased 16% and trading on NASDAQ rose 13%.
The first estimate of fourth quarter GDP was reported this morning at +0.7%, resulting in a full year gain of 1.7% - tepid, but far from a recessionary value. Analysts pointed to the Bank of Japan's negative interest rates for starting this rally, but the market action was somewhat muted this morning and accelerated as the day wore on. About half of today's increase came after noon.
I took the opportunity to add to my March put spreads on SPX, but I would still recommend caution. The price action of the past few days has pushed SPX above the middle of the Bollinger bands. You wouldn't know it from all of the negative commentary, but the markets have recovered quite a bit.
