Friday, August 1, 2014

Keystone's Morning Wake-Up 8/1/14; Monthly Jobs Report; Consumer Sentiment; ISM Mfg Index

At 8:30 AM EST, the Monthly Jobs Report is 209K jobs and an unemployment rate of 6.2%. The consensus was 233K with a range between 200K and 280K. Many traders were looking for 220K so the number is on the weak side less than expectations. Last month the markets celebrated the 288K blowout jobs number. The unemployment rate is 6.2% compared to last month’s 6.1% and the 6.1% expectation so detractors on the economy will say the unemployment rate is rising, which is correct, while the cheer leaders for the economy will say that the jobs numbers above 200K for six consecutive months prove a sustainable recovery is underway, which is correct.

Digging deeper, the labor participation rate increases a single hair from 62.8% to 62.9% remaining at multi-decade lows. People cannot find jobs and have given up. Average hourly earnings and the average hours worked are flat so traders feel no pressure to higher workers. Wage growth remains absent and does not agree with yesterday’s Employment Cost Index data. Inflation cannot exist without rising wages. The absence of inflation indicates that the five-plus year Keynesian policies by the Fed are failing. Personal Income and Outlays data show a +0.4% increase in Personal Income as expected and a +0.4% increase in Consumer Spending in line with expectations.

The 10-year Treasury yield drops from 2.58% to 2.53%. US futures improve towards the flat line after the Goldilocks (not too hot not too cold) jobs number. Fed’s Fisher calls for rate hikes sooner rather than later but he is a hawk so this comment is expected. At 8:48 AM, US futures are positive albeit at the flat line so the jobs data create a 12-point bounce in the S&P’s. The economy shows a rise in the unemployment rate with flat wages so the Fed will remain comfortable in providing easy money accommodation so stocks rally. The 10-year settles in sideways at the sticky 2.55% S/R level over the last couple days.

Markets will pivot at 10 AM-ish on the Consumer Sentiment and ISM Mfg Index data. A relief rally is expected as discussed in this mornings charts due to the uber low -2600 NYAD print. Overall, however, using the NYAD weekly chart, a more tradeable bottom may still be 1 to 4 weeks away. For nimble traders, the relief rally may offer a short term trading opportunity. If remaining short, pay attention to the 200 EMA on the 60-minute chart at 1963-1965 level which can be used as a stop against the short. The SPX is under the 200 EMA on the 60-minute at 1964.51 signaling bearish markets for the hours and days ahead. Market bears are on easy street beating the bulls with a baseball bat as long as the SPX stays under the 1963-1965 level. Above SPX 1963, and the market bulls will regain control and mount a very strong recovery rally. Note that the RUT 150-day MA slope is now dropping negatively for 3 consecutive days indicating the start of a cyclical bear market for stocks (scroll backwards to reference the previous RUT chart or type 'RUT' into the search box).

Utilities must be watched closely moving forward. Type 'UTIL' into the search box at the right to bring up the prior charts to come up to speed with using the utes as a forecasting tool. The closing price for utilities, UTIL, 15 weeks ago, is very important and programmed into Keybot the Quant, Keystone's trading algo. This week, only applicable for today, the UTIL number to watch is 543.00. More importantly, for all of next week, the 15-week look-back number is 551.66. UTIL begins today at 541.82. Therefore, if markets recover, watch for UTIL 543 which will verify that the relief recover rally bounce is underway. If UTIL stays under 543 the selling pressure will remain in equities. At the 4 PM close check UTIL to see if it is above or below 551.66. Below and market weakness will continue into Monday while a recover in utilities today above or near to the UTIL 551 level will indicate that Monday will set up rosier for the market bulls.

Keystone bot ARO yesterday opening a new long position and continues to like Aeropostale as a long-term long play as well as a nice trading stock on the long side. ARO shows nice positive divergence on the charts. Ditto AEO and COH so these retail stocks are worth a look on the long side as well. Keystone also bot DCTH opening a new long position which is an extremely dangerous and speculative long play. Positive divergence is in play for Delcath but this company can be here today gone tomorrow.

Note Added 9:33 AM:  UTIL is 542.42 moving higher to test the 543 as described above. Equities begin on the negative side.

Note Added 9:41 AM: Whoa. UTIL takes the 543 level but is spanked back down by the bears now at 541.64. Equities recover to the plus side but will not stage much of a comeback if UTIL stays under 543. Use the UTIL 543 as the rudder steering the market directional ship today. Bulls need UTIL above 543 otherwise more pain is likely. TRIN is 0.81 favoring bulls.

Note Added 10:02 AM: Consumer Sentiment is lackluster at 81.8 but can easily keep the party going. The ISM Mfg Index is a robust 57.1. Stocks rally and are firmly positive on the day. TRIN 0.80. There you go. UTIL 543.72. See if this piercing through 543 holds, if so, the recovery rally is verified for today. Bears need to push UTIL under 543 in the minutes ahead to resume the downside selling.

Note Added 10:04 AM: UTIL 544. SPX is 1937 now up 6 points. UTIL 543.93 ... 543.87 .....

Note Added 10:51 AM: Pay attention to UTIL 543 and 551.66 today. UTIL is now printing at 543.11... whoopsies daisies UTIL drops under 543 to 542.79, this saga will likely continue today.

Note Added Sunday, 8/3/14, 1:51 PM: Equities sold off into the noon hour on Friday then recovered into the early afternoon. UTIL ran up to 543 but could not punch up through, ushering in late market day weakness. The Dow chart, $INDU, shows the slope of the 150-day MA flattening threatening to go negative like the RUT did last week signaling the start of a cyclical bear market (weeks, months, perhaps one or two years of market selling ahead). The end-of-day prints for the last two days for the Dow 150-day MA are 16484.08 on Thursday and 16484.16 on Friday. This is serious business. The slope of the 150-day is remaining positive by only a measly eight pennies. If the 150-day MA slope rolls over to the negative side (printing 16484.16 or lower) a cyclical bear market begins for the Dow Industrials, and this would agree with the RUT, which will then place more nails in the bull's coffin. If the 150-day MA remains positively sloped, that will hint that markets are recovering and will recover moving forward.

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