By Gareth Soloway on August 6th, 2010 12:01pm Eastern Time
The markets gapped lower initially after the Non Farm Payrolls Report showed a higher loss of jobs that expected. After the gap down, the markets surged back toward the unchanged level with the SPDR S&P 500 ETF (NYSE:SPY) hitting a high of $112.57. This was just $0.28 shy of the gap fill. The markets then dumped, the market collapsing after volume dried up and it appears one institutional seller came out and unloaded a large block. Because of the light volume, that block sell crushed the markets and all of a sudden the sellers came back with a surge. The markets dropped quickly to the $110.92 level on the SPY. Note the chart below which signaled a buy at that level. Since then, volume has dried up again and the markets have bounced higher, though still down on the day.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.comRead more…
By Nicholas Santiago on August 6th, 2010 10:58am Eastern Time
Today the government job report was a disappointment. The housing market has been slumping since the government tax credit has expired. The 10 year Treasury yield is under 3.00 percent which tells us that money is still going into bonds and not stocks. However, the markets have rallied sharply higher since early July. Europe still faces major debt issues despite the $1 trillion bank bailout by the European Central Bank. What is the catalyst for this move higher in the stock market? Is it purely the strong Chinese economy or is there something else at work?
It is the declining U.S. Dollar. Since June 7th the U.S. Dollar Index has declined by nearly 10 percent. If you have not noticed yet the major stock market indexes such as the SPDR Dow Jones Industrial Average (NYSE:DIA) are higher by 10 percent since the July low. Therefore, when the dollar declines the major stock indexes inflate higher. The opposite case can be made when the dollar trades higher the stock market indexes will deflate. Just compare the U.S. Dollar Index to the Powershares QQQ Trust (NASDAQ:QQQQ) or any other major index since March 2009 and you will see the inverse relationship to the U.S. Dollar Index.
The plan by the U.S. Treasury and the Federal Reserve Bank is to inflate the stock market back to health. To there credit since the March 2009 low it has worked. The next major hurdle now for them is to get the U.S. consumer to spend more money. As you all know by now consumer spending accounts for 70 percent of the gross domestic product in the United States.
As for now as long as the dollar declines the stock market indexes rally and the markets inflate higher. The problem comes when the people that are on fixed incomes such as retirees start to complain that their money is buying less the same way it did in November 2009. At that time the U.S. Dollar Index was trading as low as $74.26. In a deflationary environment the ultimate track record of a nation using inflation to defeat deflation is not very good. Japan which is the second largest economy in the world has tried to fight deflation with inflation since 1989 with very little success. In the late 1987 the Nikkei Index traded at 39,000.00 and today it is at 9650.00. When you think about it failure is what makes capitalism work and failure is what may ultimately defeat deflation.
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The US JULY JOBS report (-131K NFP, private payrolls +71K from +31K, unemp rate unchanged at 9.5%) is sufficiently negative for the market to sell the USD across the board based on the rationale of additional easing measures from the Fed. I noted yesterday "negative US jobs report may not boost the USD on the rationale of risk aversion, with the explanation stating that Unlike in other cases when falling stocks have proven positive for USD, a disappointing July payrolls figure will justify the Feds downward forecasts and unusually uncertain view at the expense of prolonged downside in bond yields and USD. We should see more USD selling in the event that stocks head back into positive territory intraday basis, but even a renewed retreat is UNLIKELY to prevent EURUSD from hitting $1.3330 next week. YEN CROSSES will be as volatile as stocks are, but given the fact that global bond yields are around 16-nmonth lows, yen strength will likely prevail.
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By InTheMoneyStocks on August 5th, 2010 3:14pm Eastern Time
Today the market indexes have been in a long sideways range inching higher off the intra-day lows. The overall volume is extremely light as the highly traded SPDR S&P 500 ETF (NYSE:SPY) has traded just 103 million shares as of 3:00 pm EST. This could be the lightest volume day in the past three months. As many advanced traders know this is a difficult market to sell short. Hence the old market adage, "never short a dull market". Light volume always favors the upside and the past three trading sessions have proved that. Often many inexperienced traders will try and sell short the market intra-day and find that the indexes can push through resistance levels fairly easily. This is because there are very few institutional sellers at these levels. Remember it is the institutions that move the markets not the small investor that is trading 100 shares.
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By Gareth Soloway on August 5th, 2010 11:42am Eastern Time
The markets received the Jobless Claims report this morning at 8:30am ET. This number was poor, showing an increase in filings for unemployment to 479,000 last week. Economists had expected a number in the range of 450,000 - 460,000. Jobless Claims continue to be stuck just under 500,000 and show little adjustment down. This tells Wall Street that job growth will continue at an extremely slow pace, if at all. While this data was ugly, the markets are only down slightly as light volume takes over ahead of the next big report. The SPDR S&P 500 ETF (NYSE:SPY) is lower on the day, trading at $112.46, -0.51 (-.45%).
Tomorrow the Non Farm Payrolls and Unemployment Report will hit the markets at 8:30am ET. This is what the markets have been looking forward to all week. Expect a solid move in the markets on decent volume for the first couple hours. After that, it is likely volume will die out and the markets will go to sleep early for the weekend. Economists are expecting a Non Farm Payroll number showing a loss of 85,000 - 100,000. The loss is expected due to government census layoffs. The market will be looking at the number minus the census layoffs to determine whether or not to shoot the markets up or down. Also, watch the private sector employment within the non farm payrolls.
Most of the media will hype up the Unemployment Report. It is expected to be around the 9.5% level. While this number is hyped by the media, it is actually the worst example possible of those in or out of work due to the way it is calculated. When things are ugly in the economy, many people stop looking for work and just sit home. In other words they give up hope of finding a job. If they are doing this, they are not calculated in the Unemployment Report. If someone is working part time because they cannot find full time work but must pay the bills somehow, they are not included either. There are many other factors that make that Unemployment Report very misleading. I am here to keep the hype away and give you the low down dirty truth. To get more information, guidance, swing trades and education, join the Research Center.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.comRead more…
USDX 3-month LIBOR continues to deteriorate; todays fixing drops to 0.418% vs. 0.52% 2 weeks ago, while EUR-3 month LIBOR rises to 0.832% from 0.75 in mid July. This is leading to an ever widening spread in favour of the EUR reaching +41 bps. This weeks article on EURIBOR, Euro & USD Index featured the chart of the EUR-USD libor spreads http://bit.ly/b5Ek8n and its rising correlation with EURUSD. Any hints from JC Trichet today about normalizing monetary policy will likely further boost EURUSD towards the $1.3270 resistance. USDCAD eyes support at 1.01 after the sharp decline from 1.02, which was in line with yesterday's IMT warning here http://chart.ly/ mec6b8 GBPUSD looking to regain $1.5940s. Watch out from Jobless Claims and Trichet conference at 12:30 GMT (13:30 BST).
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