The S & P has traded in a very narrow 10 point range for the past 3 days, consolidating ahead of this morning’s jobs report. After several days of favorable regional Fed component data on manufacturing jobs, supported by the ISM on both manufacturing and service jobs, the weekly claims report undermined the optimism. The S & P was poised to take a positive surprise and push through technical resistance at 1130. Within the recent 10 point trading range, the S & P settled in the middle of that range and will need a little stronger report to get us through 1130. Weekly jobless claims rose to 479,000 from an upwardly revised 460,000. Expectations were for 455,000. After several weeks of seeing “seasonal adjustments” play havoc on the number, investors were hoping that the last week and this week’s numbers were pure and reflected the real level. However, the labor department did say that there were some seasonal factors at work in this week’s number, so investors were forced to take this report with a little salt and hope for the best on the monthly number.
Another negative that was somewhat job related was July same-store sales. One of the big losing components of the Retailers was the “teen” segment. Buckle Inc. BKE (-4.0%), Aeropostale Inc. ARO (-6.1%), Wet Seal Inc. WTSLA (-0.3%), and Hot Topic HOT (-5.3%) were below forecasts on sales comparisons. Given the slowdown in consumer spending, retailers have tried to push the “back-to-school” season into July. Families didn’t bite. Part of the expectation was that they could lure buyers sooner. The other problem is that one segment of the “underemployed” is teens. Teen unemployment is triple the rate of the national average. That’s bad news for the teen retail segment, which spends a much higher percentage of their earnings. Despite the negatives on retail, the S & P Retail Index, XRT, struggled back from early losses to close down just 0.2% on the day.
We talk a lot about “stability” these days. After a housing surge that was clearly stimulus related, the subsequent drop in sales is expected to lead to a slower, but stable housing environment. Financials have had a tough quarter. The April peak was based on optimism that we were through the financial crisis and that banks would start lending again. However, financial weakness in government debt sent European banks plummeting, for fear that the falling debt ratings would remove sovereign debt holdings from their capital base. That was the catalyst for the market decline from April to June, and the Financials were stuck in the negative flow. The Financial Select Sector SPDR fell to a new 10 month low in July, but managed to snap back into the trading range. Over the last month, the panic over European banks and their exposure to sovereign debt subsided, allowing our Financial sector to rally back to the highs of the past two months and stabilize. However, the XLF faces resistance and its 200-day moving average coincident at the 15 level. It stopped the rally in the Financials and now we wait, poised to breakout with the help of the employment report.
Jobs are another component of the economy that has stabilized. The addition of census workers in the spring and now the letting go of workers in these summer months have skewed the headline figures on jobs. If we take out these anomalies, the employment picture has stabilized, as well. That’s not altogether good news, as the population keeps adding an average 100,000+ potential workers to the workforce each month. That lack of job creation will result in a higher unemployment rate. Today’s report for July is anticipating an uptick in the unemployment rate to 9.6%. June was at 9.5%. Offsetting the negative impact from the census workers is an anticipated gain of 90,000 private sector jobs, according to the consensus from Bloomberg. In addition, the weak summer jobs market, especially in construction, is leading more workers to drop out of the workforce, which can temper the number. This is why one typically sees the unemployment rate rise as the jobs picture improves. That’s when more workers who had given up return to calling themselves “unemployed” and start getting counted again. I don’t think we are there yet. The headline number is for -65,000 jobs. What we would like to see is a 0.1% increase in the average workweek. No increase is expected. We won’t see significant increases in jobs until we see pressure on the average workweek. We are still well below the average seen in 2006/2007 at 34.6 hours. A reading of 34.1 hours is anticipated. Each 1/10th of an hour equates to 400,000 jobs, so this is an important component.
The market is “poised” to move today. In each of the past few days, the S & P has made sequentially higher lows. Yesterday’s low was at 1119. If we break this level, would could be headed back to the Monday gap at 1102. 1130 has remained evasive, with the best push to date hitting 1129. If we breakout above 1129, we should be headed to the January peak of 1150, which was just about coincident with the reversal day close in May at 1157. 1150 - 1170 was the original target zone for August after reversing off of the July/July low. At this point, we’re simply hoping to touch the lower end of this range at 1150 and would be willing to get off the bullish bus for a pullback in September/October. There are several reasons why the markets contract in the fall, but we have to add the negative influence of this being a mid-term election year as well. This is one of those “don’t get too greedy” timeframes. If we get a good number and the S & P moves above 1130, tighten the stop losses immediately to 1119.
The S & P has traded in a very narrow 10 point range for the past 3 days, consolidating ahead of this morning’s jobs report. After several days of favorable regional Fed component data on manufacturing jobs, supported by the ISM on both manufacturing and service jobs, the weekly claims report undermined the optimism. The S & P was poised to take a positive surprise and push through technical resistance at 1130. Within the recent 10 point trading range, the S & P settled in the middle of that range and will need a little stronger report to get us through 1130. Weekly jobless claims rose to 479,000 from an upwardly revised 460,000. Expectations were for 455,000. After several weeks of seeing “seasonal adjustments” play havoc on the number, investors were hoping that the last week and this week’s numbers were pure and reflected the real level. However, the labor department did say that there were some seasonal factors at work in this week’s number, so investors were forced to take this report with a little salt and hope for the best on the monthly number.
Another negative that was somewhat job related was July same-store sales. One of the big losing components of the Retailers was the “teen” segment. Buckle Inc. BKE (-4.0%), Aeropostale Inc. ARO (-6.1%), Wet Seal Inc. WTSLA (-0.3%), and Hot Topic HOT (-5.3%) were below forecasts on sales comparisons. Given the slowdown in consumer spending, retailers have tried to push the “back-to-school” season into July. Families didn’t bite. Part of the expectation was that they could lure buyers sooner. The other problem is that one segment of the “underemployed” is teens. Teen unemployment is triple the rate of the national average. That’s bad news for the teen retail segment, which spends a much higher percentage of their earnings. Despite the negatives on retail, the S & P Retail Index, XRT, struggled back from early losses to close down just 0.2% on the day.
We talk a lot about “stability” these days. After a housing surge that was clearly stimulus related, the subsequent drop in sales is expected to lead to a slower, but stable housing environment. Financials have had a tough quarter. The April peak was based on optimism that we were through the financial crisis and that banks would start lending again. However, financial weakness in government debt sent European banks plummeting, for fear that the falling debt ratings would remove sovereign debt holdings from their capital base. That was the catalyst for the market decline from April to June, and the Financials were stuck in the negative flow. The Financial Select Sector SPDR fell to a new 10 month low in July, but managed to snap back into the trading range. Over the last month, the panic over European banks and their exposure to sovereign debt subsided, allowing our Financial sector to rally back to the highs of the past two months and stabilize. However, the XLF faces resistance and its 200-day moving average coincident at the 15 level. It stopped the rally in the Financials and now we wait, poised to breakout with the help of the employment report.
Jobs are another component of the economy that has stabilized. The addition of census workers in the spring and now the letting go of workers in these summer months have skewed the headline figures on jobs. If we take out these anomalies, the employment picture has stabilized, as well. That’s not altogether good news, as the population keeps adding an average 100,000+ potential workers to the workforce each month. That lack of job creation will result in a higher unemployment rate. Today’s report for July is anticipating an uptick in the unemployment rate to 9.6%. June was at 9.5%. Offsetting the negative impact from the census workers is an anticipated gain of 90,000 private sector jobs, according to the consensus from Bloomberg. In addition, the weak summer jobs market, especially in construction, is leading more workers to drop out of the workforce, which can temper the number. This is why one typically sees the unemployment rate rise as the jobs picture improves. That’s when more workers who had given up return to calling themselves “unemployed” and start getting counted again. I don’t think we are there yet. The headline number is for -65,000 jobs. What we would like to see is a 0.1% increase in the average workweek. No increase is expected. We won’t see significant increases in jobs until we see pressure on the average workweek. We are still well below the average seen in 2006/2007 at 34.6 hours. A reading of 34.1 hours is anticipated. Each 1/10th of an hour equates to 400,000 jobs, so this is an important component.
The market is “poised” to move today. In each of the past few days, the S & P has made sequentially higher lows. Yesterday’s low was at 1119. If we break this level, would could be headed back to the Monday gap at 1102. 1130 has remained evasive, with the best push to date hitting 1129. If we breakout above 1129, we should be headed to the January peak of 1150, which was just about coincident with the reversal day close in May at 1157. 1150 - 1170 was the original target zone for August after reversing off of the July/July low. At this point, we’re simply hoping to touch the lower end of this range at 1150 and would be willing to get off the bullish bus for a pullback in September/October. There are several reasons why the markets contract in the fall, but we have to add the negative influence of this being a mid-term election year as well. This is one of those “don’t get too greedy” timeframes. If we get a good number and the S & P moves above 1130, tighten the stop losses immediately to 1119.