Monday, April 7, 2014

Putting the jobs number in context

By Jeff Greenblatt

The jobs number was very interesting. At 192,000, it wasn’t a bad number. But the Nasdaq got crushed. Then, for the first time, the bears came out of hibernation on the Dow as well. So what is going on? Recently, I told you that Clinton was credited with 22 million jobs in eight years. That’s 2.75 million a year, which converts to 229,000 a month. Obviously, some months will be better, some not so much. But remember, he was in office at the right place and the right time. He was the beneficiary of a historic Internet breakthrough. He was the beneficiary of the back end of all the good work created by Ronald Reagan. So they are only 40,000 jobs off that pace. What’s a measly 40,000 among friends? Apparently, somebody thinks we should do better.

We continue to see the complacency and arrogance as represented by the VIX. This is an economy only five years removed from the worst economic crisis since the Great Depression. They expect this economy to measure up to that one? Who’s kidding whom? I see this very low VIX starting to manifest itself in many kinds of weird ways. But now this market is making new highs again, and when markets make new highs it means it’s priced to perfection. I remember back in the summer of 2000 when stocks were priced to perfection and in fact some of the earnings reports were good. It didn’t matter.

Those were the heady days of the “whisper number,” and if it didn’t hit that number they took the stock out to the woodshed. Stock meets expectation? Not good enough, the whisper number was higher. In this case some of the experts felt the number should have been north of 200,000. Why? They had no idea why? These people are just pulling numbers out of the sky. Here we were coming off the coldest winter in years, and just 30 days ago they were praying the numbers were skewed by the weather. So in essence, 192,000 should have been more than good enough. If you saw some the reactions by Democrats, they weren’t happy at all. You’d think they already lost the election. Now it’s too late. Maybe some of them shouldn’t have been so full of ideology and more pragmatic about the economy.

Part of the problem is the sticker shock many are experiencing as they look for houses this season. According to a CNBC article, home prices are up 12.2 percent from this time a year ago and the source is CoreLogic, while wages are only up 2.1 percent. That could be why the stock market got crushed last session. Now lenders actually require buyers to come up with a healthy down payment, something that didn’t happen during the housing boom last decade. The only people who have it are the hedge funds and other investors, which are suddenly backing off. To give you an idea, 65% of mortgage originations were at a fixed rate, while we are above 95% right now. Additionally, buyers could get in with 1% teaser variable rates. Rising rates, higher down payments and a less-accommodating economy add up to shrinking affordability. According to Zillow, by historical standards there is a 62.4% unaffordability rating for Miami. Los Angeles is 57.2%. San Diego is 55.3%. Denver, San Francisco and San Jose are all above 50%.

This is a strange set of circumstances. Why? The dollar was up last week out of its triangle and if we follow the usual inverse relationship equities should’ve been down. They were, but it was incredibly uneven as certain areas like biotech and housing got hit especially hard, not to mention some of the newer technology like the Mark Zuckerberg stock. Until Friday afternoon, the SPX and Dow were just fine.

Adding to the confusion is the technical situation of what was already hit. Look at this NDX chart.

From the last rally leg in February, which I happen to believe was the less-sophisticated chasing performance, they initially retraced it to 61%. Going back the other way on this bounce, they also retraced it back 61%. Forget Friday for a minute. When a pattern retraces 61% one way and then does the exact same thing going back the other way, it confuses traders. What does 61% mean in the first place? The 61% retracement means the underlying strength of the trend is weakening. That means the bull going up was losing strength or else it wouldn’t have had such a steep retracement. Many 61% retracements barely make new extreme pivots (in this case a high). Okay now you have the snap back which was also 61%. What that means is the snapback wasn’t all that strong. So you don’t have too much strength going either way. Now let’s bring in Friday. Right now the bull has zero margin for error at 61/61. But let’s just say it shouldn’t have come back to the low so quickly. Right now we are back where we started from when they bounced it originally. It took about eight 360-minute candles to get to a high, and it was erased mostly in one stretch. Any more selling below this level and one just about could eliminate the trading range scenario.

Concerning the bears you know I’ve had a lot to say about them since November 2011. Since the time window in March which this chart is validating I’ve told you the bears are coming with more courage if not a new brand of boldness. Putin had a lot to do with it. But if you had one strong reason to believe in the correction (geopolitical) now with the jobs number and housing affordability issues this thing is suddenly about to let the cat out of the bag.

Your takeaway technically coming into the new week is a market that suddenly has zero margin for error and we are starting to hit the seasonal point in the year where markets tend to correct. That would be the May to October phase.

Last week I told you this was going to be a market frustrating to both bulls and bears. You see the NDX pattern, it’s a roller coaster. But how about those people trading the patterns similar to the Dow and SPX? Do you think they enjoyed the failure to break out on the new high? If anything changes this week it could be less frustrating to bears. But I still suspect we end up with a winding and grinding type of correction reminiscent of the old patterns from the 70’s.

Just a quick update on the meeting I told you I attended last week with the well-known spiritual leader. In my last post I passed along his view the Middle East was hanging by a thread. Part of the problem is peace proposals floated between the Palestinians and Israelis are not acceptable to either party. On Friday, John Kerry stated the United States is reconsidering its role in the peace process altogether. It was just this morning that Ben Stein went on CBS Sunday Morning and said it was time for John Kerry to “wake up.” In a nutshell, the Palestinians are looking for a deal where they would recognize the state of Israel as a state but not a Jewish state. That would mean refugees from across the Middle East who left after Israel became a state in 1948 could return to Israel. Obviously, a lot of those people are no longer alive but their offspring are numerous. What that would do is make the Jewish people a minority in their own country. In a post-holocaust world, that is never going to happen. The John Kerry imposed deadline for talks between the parties is April 29. These days a lot of Americans do not care for Israel as past generations did. But I am here to tell you whether you like Israel or not, it is the absolute key to world geopolitics. If Israel were to hit any nation in the Middle East, especially Iran, a major war would break out and it certainly would impact financial markets. I’ve shown you what happens to charts when war breaks out.

Despite the latest excuses to take the market down on Friday, I still believe 2014 has the greatest potential to be the most important geopolitical year of the young century since September 11.

See the original article >>

No comments:

Post a Comment

Follow Us