The one big snag on the recovery has obviously been a lack of job growth. For whatever reason you believe the fact remains the private sector has had trouble adding payrolls. Certainly the Federal Gov't has been trying to help, but perhaps we have regressed. The confidence numbers are weaker, regional areas are showing signs of stalling and revisions tell us there are more job losses in the pipeline. The market says: 'what, me worry?' The remainder of the week shows us jobs data each day, starting with ADP, jobless claims then the big one Friday.
The fear of a slowing economy is not assumed here, and while fear is not a factor we have to be on guard for a quick selloff.
Tag >> Jobs
Now that the markets managed to handle a weak December jobs number last Friday, the focus now turns to earnings season.
As is the custom, ALCOA, Inc. will be the first DOW component to report Q4 earnings after the close on Monday. This sets into motion the stream of earnings that will last the next 4-6 week. Technology stocks and financials are likely to be the keys to this earnings cycle yet again, because when those industries are healthy and growing, they tend to bring a lot of other sectors along for the ride.
Year over year earnings are expected to increase, but many will argue that the increased earnings are not from a growing economy, but rather the poor numbers from December 2008. The fact is that earnings expectations are still relatively modest, allowing companies to meet or exceed those expectations. We have seen earnings come in better than expected the last three earnings cycles, and there has been virtually nothing to suggest that this trend will be broken starting tomorrow.
Where you need to be focused is not necessarily the actual earnings numbers from last quarter, because after a day or so, that is old news. Stocks are always priced looking forward, so earnings guidance and forecasts will be key for companies. What do major executives at many of the Fortune 500 companies see for their businesses going forward? Do they anticipate increased growth or do they see potentially hiring more employees in 2010?
With tomorrow starting expiration week for January options, another layer of complexity is added to the pie. Now that we are in the New Year, the rat-race for returns has kicked back into gear and money-managers will be chasing returns wherever they can find them. A positive few weeks for earnings could mean another 3%-5% run in stocks by Valentines Day.
Trading volume and activity is relatively light today, as was the case yesterday. Many bulls are concerned that the S&P 500 is not making new closing highs now that we are in December. Adding to those concerns is the relative weakness of financials compared to the broader market. Financials typically out-perform in bull markets, but they are only up 3.35% since September 4th compared to 10.6% for the S&P 500.
Although there is some truth to this argument, the focus right now should not be on relative strength of financials, tech stocks, or anything else for that matter. The jobs number and volatility is where you should focus your watchful eyes over the next 24 hours.
Since the last Non-Farm Payrolls and Unemployment numbers were released on November 6th, all three major indices are up over 4% (Dow 4.41%, S&P 4.04% & Nasdaq 4.15%). That doesn't seem to make too much sense considering the unemployment rate on November 6th hit 10.2%, the highest level in over 26 years!
So even if the unemployment rate rises tomorrow, I think that the market is set for another rally from a technical perspective. The chart below shows the S&P 500 Index at the top, with the CBOE Volatility Index (VIX) at the bottom with 20-Bar Bollinger Bands. As you can see, the outer bands on the VIX currently sit at 25 and 20. This is no coincidence, because those are two clearly defined support and resistance levels for the VIX on a daily chart.
Secondly, look how tight the bands have become around the VIX in the last week. Even in the face of last Friday's panic about credit problems in Dubai, we still have seen the bands continue to tighten. Even if we get a terrible jobs number and the market sells off hard tomorrow, the upper band is so close to where the VIX is now, we are likely to see a break of the upper band. And the last four times we have seen a close outside the upper Bollinger Band, the market has put in a short term bottom.
At the end of the day, tomorrow's jobs number is the catalyst to get this market into a trending phase once again, and I believe that the trend will be bullish. Buy any dips in the next few days, because that will be your best opportunity for profit.
So FORTUNE magazine has crowned a CEO of the Decade, and it's not surprisingly Steve jobs, head of Apple (AAPL). No doubt Mr. Jobs has indeed done a wonderful job, even I recently joined the iPhone revolution and it's a fantastic product.
The problem for a stock's price is that the market moves based on EXPECTATIONS, and this cover signals the bar has been raised significantly for AAPL shares here going forward. The last such cover for AAPL and Jobs came in late 2005 thanks to TIME and BUSINESS WEEK, near $70 on its way to $50 over the coming 6 months (though it was still holding its bands at 50 which caused the support there - see below).
As you can see on the monthly chart, using a twist on the traditional 20-day Bollinger Band, I plotted an 80-month Bollinger Band (with 2 standard deviations) and the 2 closes in a row over the band back in late 2004 under $13.50 a share was indeed a golden buy. But now with the stock a 15-bagger from those levels, you can see AAPL is doing battle with its upper 80-month band, now around 203. The stock would need 2 monthly closes above there to renew potential bullishness, and with the cover story suggesting the end of the uptrend is near (usually the stock can trickle up for another month after a cover, but in the following 11 months it lags the market), I'd suggest AAPL devotees consider strategies to hedge their positions over the coming year.
Apple (AAPL) Monthly Chart with 80-Month Bollinger Bands
Of course, with the money AAPL shareholders have made, the common human behavior is to see through rose-colored glasses all the things that could go right, rather than the possibility that even the slightest misstep could lead to a piling out of the stock. We'll see, but I'll bet that while the numbers on earnings and sales will still look impressive on the surface, Wall Street will find reasons to be disappointed in AAPL shares in 2010.
The problem for a stock's price is that the market moves based on EXPECTATIONS, and this cover signals the bar has been raised significantly for AAPL shares here going forward. The last such cover for AAPL and Jobs came in late 2005 thanks to TIME and BUSINESS WEEK, near $70 on its way to $50 over the coming 6 months (though it was still holding its bands at 50 which caused the support there - see below).
As you can see on the monthly chart, using a twist on the traditional 20-day Bollinger Band, I plotted an 80-month Bollinger Band (with 2 standard deviations) and the 2 closes in a row over the band back in late 2004 under $13.50 a share was indeed a golden buy. But now with the stock a 15-bagger from those levels, you can see AAPL is doing battle with its upper 80-month band, now around 203. The stock would need 2 monthly closes above there to renew potential bullishness, and with the cover story suggesting the end of the uptrend is near (usually the stock can trickle up for another month after a cover, but in the following 11 months it lags the market), I'd suggest AAPL devotees consider strategies to hedge their positions over the coming year.
Apple (AAPL) Monthly Chart with 80-Month Bollinger Bands
Of course, with the money AAPL shareholders have made, the common human behavior is to see through rose-colored glasses all the things that could go right, rather than the possibility that even the slightest misstep could lead to a piling out of the stock. We'll see, but I'll bet that while the numbers on earnings and sales will still look impressive on the surface, Wall Street will find reasons to be disappointed in AAPL shares in 2010.
This is an important week for economic data, specifically pointing to the jobs reports. In recent months, the data has been much more friendly, perhaps pointing toward some stability. However, the recovery may have stalled, and the momentum from a good number may be lacking. In fact, a recent report of online help wanted ads fell by 101,800 in September, which suggests that Friday's non-farm payrolls report may not be as healthy as everyone expects. We'll see the early reaction from the ADP report then Thursday's jobless claims thereafter. Let's not forget the turn of the calendar is on Thursday. Could a correction be far behind?
We mentioned late last week that the late buying surge was a clue into the next move, which would be higher. Monday certainly showed us that much! The breadth was tremendous, nearly 5-1 to the positive but turnover could have been better. What's striking is the collapse of the greenback, which is not getting any support whatsoever. Bond yields have been rising to elevated levels, too. Meanwhile the rest of the week is all about jobs....the ADP report Wed, jobless claims Thurs and then the big employment report Fri. Perhaps the market has baked in the numbers, but we don't think there will be a big move higher on the report.