Employment Report Gives the Market a Pause

Pre-market futures were up strongly after RIMM posted better than expected results with their earnings. RIMM is set to gap up over 12 points, or about 25%. The SPY was set to open near yesterday's highs after the news. However, there was a little thing called the Employment Report that was still on the schedule.....

The Employment Report showed Nonfarm Payrolls were -663k vs. -660k predicted, which is slightly worse than expected. The news brought the market all the way back to basically a flat open. Obviously it didn't take Nancy Drew, a spyglass, and a Sherlock Holmes kit to figure out that the Nonfarm Payrolls for March would be slightly worse than expected, but there it is. Some other numbers from the Jobs Report showed that the Unemployment Rate met expectations of 8.5% but jumped from 8.1% the prior month. The Unemployment Rate now stands at a 25 year high. In addition, employers cut back on hours as the Average Workweek fell to 33.2 vs. 33.3 expected, and 33.3 the prior month. Also from the report, Hourly Earnings held at 0.2%. Traders are still sucking up the last little drops of sunshine on the bottom of the glass, so it won't be all that surprising if they blow off the Nonfarm Payrolls and Unemployment Rate numbers, and fixate on RIMM and the Hourly Earnings number, and try for one more push some time during the early part of the day.

7:53 am MT: Here is a current 15m chart of the SPY showing a trend channel and the first push/bounce I speculated, and then a roll back down to test the bottom of the channel.
(click on image to enlarge)

As long as the channel holds, trades are still sucking up little drops of sunshine.....

8:00 am MT: The channel is starting to break down into a gap test along the 82.75 - 83.00 area, which is also the previous peak high on March 26. If the bottom of the channel, the gap, and the previous peak don't hold, then the SPY (market) will probably head to the 81.50 - 82.00 area.

8:07 am MT: This is the tipping point, if the SPY (market) doesn't hold 82.75 then we will probably see a drop to the next level.

8:12 am MT: With the market sitting in stasis for a moment as it battles along the gap and previous peak at 82.75, I'm going to rant for a bit. If you don't like my rantings, this is a good time to go get a snack or drink. I will make two important points, though. The rant centers around a timely comment that Dorothy made this morning (good job Dorothy catching the January revision - which was the number from two months ago).

8:27 am MT: Ok, I've calmed down a bit so I decided not to rant, but to present the information in a calm, unemotional manner (if that's possible for me). The first point I am going to make (in a calm manner now) is that it took more digging than it should have for me to get the revision news from the Employment Report. Unfortunately, many news services carry a heavy bias, and sometimes it takes some digging and the ability to interpret media-ish to find out what really happened. It bothers me when I have to use a metal detector, a sonarscope, and a special interpreter every time I want to find the real news that could possibly affect my trading.

As Dorothy pointed out, the January Nonfarm Payrolls number was revised down to -741k from the original -655k reported, which is a big drop of over 13% in the numbers. Several sites played down the news as either "old", "not as bad as expected", or "only a revision to January but not February" (we'll see about that last one, which will take me to point number two eventually). Really, the more I dig through the report and process it, the worse it looks - not better.....

CNBC is currently carrying the headline "Job Losses Grow, But More See Signs the Worst is Over" with the sub-title "It almost can't get any worse" (which is entirely missing the point that it might not get any better for months to come). It's one thing as a trader to get all giddy about the "stabilizing" of the downtrend in some economic report, which usually starts a big rally in the stock market in anticipation of the economic recovery (which is what the past three weeks have been all about). It's an entirely different thing to "stabilize" the job losses, but not have the policies and mechanisms in place for a sustainable economic recovery for years to come. And to still be at risk in the real estate market because the jobs market is only "stabilizing" and not "recovering."

Traders knee jerk on the word "stabilizing" because in fundy trader-ish (lots of languages this morning) "stabilizing" really means "first signs of an economic recovery that leads to a huge bull market which makes me a ton of money if I hop on the bandwagon first because it gets me a Ferrari and an upper west side condo and my own island resort and a limo service and I'll never have to work another day in my life again (pant, pant, pant)!" Which creates a nice segue into point number two.

You've heard me speak, and have seen me write on numerous occasions recently about the economic "revisions" game that is going on, which doesn't appear to be dawning on some fund managers. Many of the Googly-Eyed fundies are not only trying to suck up as many drops of sunshine on the bottom of the glass as possible while their heads implode from the pressure. But they're also pulling up that same straw to face level, closing one eye, and forcing the other eye to strain through straw so they can view the "economic recovery" in as narrow and myopic manner as possible. And the only information they allow inside the straw is the "good news" that the banks and government feed them. I don't know about you, but I kind of like to have a little broader view than that.....

There are all kinds of things I have pointed out about what may be real and what may be misleading about "government information" coming from politicians who are either seeking votes or trying to increase power (which was a major concept from the end-of-post point yesterday). But today brings back into focus the "revision" game.

I get the strong sense that government officials are under mandate to massage economic numbers to look as good a possible, and to use the revision game to post the even-worse-than-worse-than-expected numbers after the fact, especially after 1-2 months. I have pointed out this game several times recently, and I would have to imagine, somewhere, deep inside the recesses of some of the fund managers brains, they are figuring out the game as well.

Even if it isn't a game, or a mandate, it still puts a damper on the "economic recovery" when we continue to see downward revisions from prior months on many key economic reports the past several months.

Here is a list of economic reports with downward revisions for prior months, all reported in the past week and a half: Durable Orders prior month downward revision to -7.3% from -5.2%. Factory Orders prior month downward revision to -3.5% from -1.9%. Nonfarm Payrolls two months prior downward revision to -741k from -655k. Those three downward revisions were not small numbers! Last month Industrial Production also had a downward revision to the prior months reading, just to name another.

Now, these revisions may just be innocent mistakes, or perhaps an honest attempt to search and research thoroughly until the data is correct, so I'll keep cutting the government some slack, because I really don't know the answer. But what I do want to know every time I'm fed some data these days, is whether or not the data is real, or if it's actually much worse than originally reported because a "revision" is coming.....Can you imagine if a big company reported positive earnings, the stock shot up dozens of dollars and multiple percentage points, and then the company came out a month later and said "oops, sorry, just kidding, we're "revising" those numbers down now, they really weren't what we thought they were." There would be big money lost by investors in the stock, and a huge outcry against the corrupt, deceptive, and incompetent behavior of the CEO and the company. And who do you think would be leading the charge?.....

Ok, I'm done with my rant now.....

9:36 am MT: The SPY (market) is attempting to bounce and head towards the top end of the channel.

10:10 am MT: The SPY did run towards the top end of the channel, and is now hitting a resistance area in the neighborhood of 83.50. This is the same 83.50 - 83.75 area that had some intra-day significance as support yesterday.

Here is the 15m chart of the SPY:
(click on image to enlarge)

Some fund managers are continuing to blow off the bad Employment numbers and push the market a bit. As long as the channel stays intact the market could eventually break out and leg higher. As long as the market stays up then expect any news bogeys in response to negative jobs headlines to be standard political boilerplate. However, if the market sells off, then expect a market driving news bogey early next week, especially since the weekend will give the political assistants time to "cook up something really good." Those poor politician's assistants, they've probably had to work a lot of weekends the past six months while their bosses enjoyed the days off.....

10:27 am MT: Here is the 60m chart version of the same price action. You can see the Bull Flag off the gap is bouncing.
(click on image to enlarge)

This is the most likely area for a breakout of the channel. If price can break out then it will probably head for the highs around 84.50 - 84.60 before the next test. If the market cant' break out here, then we might see more consolidation for another hour or so.

10:40 am MT: There was a little push and perhaps some price manipulation just now. Watch 83.75 on the high end and 83.50 on the low end. If the market can push back above 83.75 it may be headed for 84.50, but a drop below 83.50 and it goes back to consolidation for a bit. This is an intra-day tipping point for the market.

10:49 am MT: I thought that was price manipulation.....So back down to consolidation we go.....

If the SPY (market) can hold 83.00 - 83.25 on this consolidation, then it could turn on a higher low (on the 10m - 15m charts) and eventually break the channel to the upside. However, if the Evening Doji Star variant on the 15m charts (forming right now) plays out, this could drop all the way back to 82.75 or lower.

11:08 am MT: The internals are starting to loosen up a little. I think the Googly-Eyes are getting a bit tired, and the strong hands aren't there to prop up their dreams. However, the numbers in the last paragraph are still good, so if the SPY flags on the 10m charts and ramps up, then we could still get one more push to the upside today. Price action isn't strong or weak, it's just hanging around. But the more it hangs around, the more likely all the fundies catch their breath and try for one more push.

11:14 am MT: Here is the 10m chart of the SPY showing the Bull Flag and the market just hanging around:
(click on image to enlarge)

At this point I need to partially step away and work on some special "projects" so that I can get the next stage of things ready to go in the coming week or two.

12:30 pm MT: The market is making a push back towards the highs of yesterday. There have been some decent trades on individual stocks today, but not a whole lot on the index ETF's. I speculate that most fund managers won't want to get loaded up with stock just before the weekend. So, in the bigger picture, the market will probably stay rather range-bound today and not make a whole lotta noise. After this current push is over there may not be any reason to watch every tick of the chart all the way into the close. I would be locking in profits on most of my call positions if the market approaches yesterday's high. Perhaps I would leave a little there to see if the market pushes to new highs, but not more than about 20% of all my positions.

12:40 pm MT: One other note that pertains to yesterdays post about the dollar, treasuries, and the stock market, and also to the comment I made today about the devaluation of the dollar and stagflation: The TNX is spiking today, taking mortgage rates with it. Traders are selling treasuries (causing the yield or rate to spike) in anticipation of a huge government debt issuance next week. The government is going to issue a record amount of debt this year, in other words, they are selling tons and tons of bonds in hopes of raising enough money to pay for the vast amounts of money that politicians are spending (around the world as well as at home). The huge jump in supply that's on the horizon is causing traders to sell off bonds sharply today and spike long-end of the yield curve rates (like mortgage rates). So the Fed/Treasury attacked the long end of the yield curve a few weeks ago to bring it down only to destroy the long end of the yield curve today because they are trying to keep up with the runaway spending.....

1:16 pm MT: The SPY just broke down through the uptrend channel on the day.

Here is a 5m chart of the SPY showing the breakdown:
(click on image to enlarge)

The day is still range-bound, as I speculated earlier, and once again, there's no sense in watching every tick of this gyration all the way into the close.

There continues to be a bit of price manipulation of candles throughout the day. The latest being the last tick (and I mean last, as in last 1/4 of 1 second) of the second to last 5m candle on the chart above. The candle was breaking down at about 83.53 when someone threw a buy at the close of the 5m candle type of order that created a price jump (a gap on the tick chart) that closed the candle at 83.65 and formed a Hammer instead of a breakdown candle. And the Hammer just happened to close right on the inside of the support line on the uptrend channel. What an amazing coincidence! As a result, the SPY tried to climb/bounce along that lower channel because "technical" traders read a Hammer that was holding and bouncing on the support line of the channel, and they took the bait.....until someone just dumped the price right back down to 83.46 after they bought into the game.....

When I run in to market conditions (dull markets) that are like this I always figure that there are too many traders out there with too much time on their hands, and they're spending all their time trying to manipulate and hose other traders out of their money. I don't even bother trading it, let alone watching it (write down the saying "never trade a dull market"). But the question about price manipulation was raised, so I thought I would show you some live examples in real-time so you know what to watch out for in the future.

By the way, what the pump and dump means is that the market is likely to drop a little more in the next few minutes, and some traders were trying to manipulate some buyers (suckers in their eyes) so they would have someone to sell to at a better price.

1:38 pm MT: Voila, there's the pump and dump sucker sell-off.....

Here's an updated 5m chart to show you the little intra-day sucker punch I described to you:
(click on image to enlarge)

These little garbage games have been going on quite a bit today both down and up. There's just too much junk going on right now to be interesting. Ok, I'm getting bored of this now, so I'm back on my other projects.....