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Buzz on the Street: Bulls Step Up to Get Beat Down

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A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.

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All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights and analysis in real-time on Minyanville's Buzz & Banter. Below are some excerpts from this week's Buzz. Click here for a 14 day free trial.

Note: Some links may require Buzz subscriptions.


Monday, April 30, 2012

The Enemy of My Enemy Is My Friend
Michael Comeau


Barnes & Noble (BKS) is up nearly 100% this morning on news that Microsoft (MSFT) will invest $300 million in a new Barnes & Noble unit called "Newco" which will house B&N's ebook and college text book businesses.

Microsoft will take a 17.6% stake in Newco, implying a valuation of $1.7 billion.

This is very big news as essentially, Microsoft is getting in on the ebook game that Amazon (AMZN) and Apple (AAPL) are nearly destined to dominate via vertical integration of devices and book publication/distribution.

This is a case of the enemy of an enemy being a friend. Microsoft likely sees the long-term dollars Amazon and Apple will earn by owning the book industry, and it wants in.

Note -- B&N announced back in January that it was exploring a separation of the Nook digital business. As it turns out, it really couldn't have picked a better partner than Microsoft, which for all its struggles in the mobile age, still has a big piggybank that it isn't afraid to spend to head off rivals.

Reversion to the Mean
Peter Prudden

When we started looking long last fall and again in late December a case was presented that the retail investor was not in this market. They were parked in bonds or on the sidelines. It made for a great script.

Let's re-visit some facts to find out if the bullish box office hit will continue to play on in the intermediate term. Looking at money market funds as a percentage of the broader S&P 500 (chart 1), we are currently back at the tech bubble and housing bubble peaks in-terms of sideline cash parked in money market funds, this obviously excludes those hoarding cash in tin cans.

Secondly, if we believe in the reversion to the mean, hat tip Neel Kashkari, corporate profits as a percentage of GDP also paints a picture of roses, but presents the question of sustainability. Last weeks lackluster first quarter GDP report was light, with five consecutive weeks of higher claims this shouldn't have been a great shock, the important take away? More is needed to avoid a muddle through approach and the FED will likely have to step back in once operation twist is put to rest in June. Otherwise a shaky economy will lose its footing and drag GDP and profit margins lower. If you strip out record low interest rates, excessive monetary policy measures and the ever expansion of government debt structually we are stuck. The patient is not well my friends and Dr. Bernanke knows this. The crash of 1929 was an event that signaled the start to a decade of depression brought on by a roaring binge. Fast forward and 2008 we saw another significant event. Bernanke is now focused on pumping such an array of monetary policy into the system in order to avoid, not a relapse in lower equity prices, but to insure the flow of credit.

Turning back to stocks, we are in a late stage cyclical rally. As defensive stocks and healthcare begin to take charge that should be met with caution as to the strength and length of the stock markets trend. The $NYMO tick low in April matches the one established in late December, suggesting we may have witnessed a recent low.


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Back to Glu Mobile
Steve Smith


I'm adding a speculative bullish position in Glu Mobile (GLUU), a maker and licensor of mobile games. This is not our first foray into this name and the reasoning has remained pretty much the same; it is in a hot growth area of online/social and is frequently rumored to be a takeover target.

As we know the numbers and frequency of these deals and their valuations have been picking up of late as the scramble to grab the next hot growth ticket becomes more frenetic, and some would say illogical. GLUU's options have seen a spike in both volume and implied volatility today, mostly driven by word that Angry Bird creator, Rovio, might be on the prowl to pick up some new assets to tap the emerging market growth

While the implied volatility is relatively high I expect to stay so for the next few weeks as long as takeover chatter persists.

While the stock has had some decent swings it had been relatively orderly and never took on the fever of a complete momentum takeover target. Meaning it shows some reliable uptrend with support between the $4 and $4.20 level. My target would be for a new high around $6.00 share.

If takeover talk starts to build I will implement a strategy more conducive to profiting from an actual bid; namely selling a calendar spread or buying front month option and selling a longed dated option for a credit. This works as once a formal bid is announced the option prices tend to move toward intrinsic value, meaning the longer dated call losses its time premium, and price gains can be achieved with reduced risk. This is a strategy I will address tomorrow in the final installment of our Nine Weeks to Better Options Trading.


Tuesday, May 1, 2012

A dull morning with the Euro markets shut down. Stock futures have meandered throughout the overnight session, trading up and down, but in a narrow range. We get the ISM data and vehicles sales today. It would be surprising if ISM didn't disappoint, which means the market has already priced in a print lower than the expectations of 53 calculated by Bloomberg. Vehicle sales will be more interesting. They have been helpful for the markets, but weather, and some evidence of channel stuffing, could make for a disappointing report this time around. Any upside surprise in this number will be a welcome relief for the bulls.

In spite of the holiday in Europe, it is still one of the biggest issues in the market. I am not sure how the debate has turned into austerity versus growth? Growth, or at least sustainable debt levels is the goal. Austerity and Spending are ways of achieving that sustainable debt level.

Growth is one way of achieving a sustainable debt level. A bigger economy would more easily support the existing debt. The key here is not creating more debt than the growth can cover. That has been one of the big problems in recent years the spending hasn't resulted in enough economic growth to cover the cost of that growth. If finding an investment that could easily pay for itself was that easy, the earnings of the S&P 500 would be much higher. Projects that can create more than enough growth to cover their cost should be pursued. It has to be a mix of near term projects and longer term projects. Longer term projects may offer the best possible return, but they have more risk, and the market may be too impatient if the spending outpaces the growth potential for too long before the project comes on line. So yes, spending to create growth has to be an option on the table, but assuming it is easy, is wrong. The tendency to fund fancy projects, like Green Energy, rather than dull things like highway expansion, is bad, because the dull project may add a lot more value.

Reducing debt and reducing expenses is another way of achieving a sustainable debt level. It is depressing and a bit scary that governments have promised far more than they can deliver. We all know that the social security and medical care that has been promised will be very difficult, if not impossible to deliver. Demographics, life expectancy, low interest rates, advancement in medicine, etc., all have played a role in making these promises so difficult to fulfill. Cutting these now is realistic and actually lets people prepare and adapt. Cutting these programs has limited impact today, but is key to creating a sustainable future, and as bad as it is to take away promised benefits, it is better for people to have a realistic expectation of the future and be able to prepare for it. This may be very difficult to achieve from a political perspective, but has the least impact on the current situation while creating a future bond investors can trust in.

Then there is all the existing spending that has limited value. Just like new spending should be examined in terms of what can generate growth, existing plans need to be reviewed. Obama never got around to the line item review of all expenses (at least not that I know of), but that might be required. While embarking on new spending programs, let's figure out what programs should be cut. Clearly they aren't achieving the goal of a sustainable debt goal. Some things may have to be cut back. This also won't be easy, but can probably create some immediate benefits without disrupting the economy much. Yet, for politicians, this is also hard. Spending new money is easy, taking money away from someone is hard, yet that is what needs to be done.

So new spending that creates more growth than it costs should be pursued. It won't be easy to find that many obvious projects, but at least politicians have an easy time spending more money. Cuts, both in the near term and to future promises are also required to create sustainable debt levels. These are easier to find, but more difficult for politicians to implement.

Then there is the pink elephant in the room, or in this case, the black market. Spain has an official unemployment rate of 24%. They project it to be 22% in 2015. This is structural. I cannot imagine the U.S. surviving with that level of unemployment. The unemployed would have taken to the streets long before it hit that level to demand change. In fact, I find it difficult to imagine any country surviving on that level of unemployment, unless it is structurally encouraged. Are the benefits too good? Is it too easy to avoid working? The longer that unemployment insurance lasts, the more likely people are to use it. The closer the unemployment benefits come to covering your working wage, the more likely you are to stay on it. Then if you can supplement your unemployment benefits with a thriving black market and some under the table jobs, why not? The U.S. may have too small of a safety net and that creates its own tensions, but it seems likely that other countries have too comfy of a safety net, especially when combined with an underground economy. If a country like Spain is paying huge amounts of money to the unemployed, and that is causing a spike in debt to unsustainable levels, then something needs to be done. Maybe the benefits can be tied to work or doing some of the projects deemed necessary for growth? This is a touchy subject for everyone, and I certainly don't have the answer, but it is time to stop ignoring the pink elephant in the room as these economies and countries try to revive themselves.

Anyways, back to a dull and quiet morning in the markets.

A dull morning with the Euro markets shut down. Stock futures have meandered throughout the overnight session, trading up and down, but in a narrow range. We get the ISM data and vehicles sales today. It would be surprising if ISM didn't disappoint, which means the market has already priced in a print lower than the expectations of 53 calculated by Bloomberg. Vehicle sales will be more interesting. They have been helpful for the markets, but weather, and some evidence of channel stuffing, could make for a disappointing report this time around. Any upside surprise in this number will be a welcome relief for the bulls.

In spite of the holiday in Europe, it is still one of the biggest issues in the market. I am not sure how the debate has turned into austerity versus growth? Growth, or at least sustainable debt levels is the goal. Austerity and Spending are ways of achieving that sustainable debt level.

Growth is one way of achieving a sustainable debt level. A bigger economy would more easily support the existing debt. The key here is not creating more debt than the growth can cover. That has been one of the big problems in recent years the spending hasn't resulted in enough economic growth to cover the cost of that growth. If finding an investment that could easily pay for itself was that easy, the earnings of the S&P 500 would be much higher. Projects that can create more than enough growth to cover their cost should be pursued. It has to be a mix of near term projects and longer term projects. Longer term projects may offer the best possible return, but they have more risk, and the market may be too impatient if the spending outpaces the growth potential for too long before the project comes on line. So yes, spending to create growth has to be an option on the table, but assuming it is easy, is wrong. The tendency to fund fancy projects, like Green Energy, rather than dull things like highway expansion, is bad, because the dull project may add a lot more value.

Reducing debt and reducing expenses is another way of achieving a sustainable debt level. It is depressing and a bit scary that governments have promised far more than they can deliver. We all know that the social security and medical care that has been promised will be very difficult, if not impossible to deliver. Demographics, life expectancy, low interest rates, advancement in medicine, etc., all have played a role in making these promises so difficult to fulfill. Cutting these now is realistic and actually lets people prepare and adapt. Cutting these programs has limited impact today, but is key to creating a sustainable future, and as bad as it is to take away promised benefits, it is better for people to have a realistic expectation of the future and be able to prepare for it. This may be very difficult to achieve from a political perspective, but has the least impact on the current situation while creating a future bond investors can trust in.

Then there is all the existing spending that has limited value. Just like new spending should be examined in terms of what can generate growth, existing plans need to be reviewed. Obama never got around to the line item review of all expenses (at least not that I know of), but that might be required. While embarking on new spending programs, let's figure out what programs should be cut. Clearly they aren't achieving the goal of a sustainable debt goal. Some things may have to be cut back. This also won't be easy, but can probably create some immediate benefits without disrupting the economy much. Yet, for politicians, this is also hard. Spending new money is easy, taking money away from someone is hard, yet that is what needs to be done.

So new spending that creates more growth than it costs should be pursued. It won't be easy to find that many obvious projects, but at least politicians have an easy time spending more money. Cuts, both in the near term and to future promises are also required to create sustainable debt levels. These are easier to find, but more difficult for politicians to implement.

Then there is the pink elephant in the room, or in this case, the black market. Spain has an official unemployment rate of 24%. They project it to be 22% in 2015. This is structural. I cannot imagine the U.S. surviving with that level of unemployment. The unemployed would have taken to the streets long before it hit that level to demand change. In fact, I find it difficult to imagine any country surviving on that level of unemployment, unless it is structurally encouraged. Are the benefits too good? Is it too easy to avoid working? The longer that unemployment insurance lasts, the more likely people are to use it. The closer the unemployment benefits come to covering your working wage, the more likely you are to stay on it. Then if you can supplement your unemployment benefits with a thriving black market and some under the table jobs, why not? The U.S. may have too small of a safety net and that creates its own tensions, but it seems likely that other countries have too comfy of a safety net, especially when combined with an underground economy. If a country like Spain is paying huge amounts of money to the unemployed, and that is causing a spike in debt to unsustainable levels, then something needs to be done. Maybe the benefits can be tied to work or doing some of the projects deemed necessary for growth? This is a touchy subject for everyone, and I certainly don't have the answer, but it is time to stop ignoring the pink elephant in the room as these economies and countries try to revive themselves.

Anyways, back to a dull and quiet morning in the markets.

Chesapeake Energy Gets New Management
Michael Sedacca


Chesapeake Energy (CHK) spiked up about 10% after the board announced a new non-executive Chairman to replace current CEO Aubrey McClendon, with input from shareholders on the new Chairman. The company will also shut down the Founder's Well Participation Program (FWPP) which allowed executives to participate in the newly drilled wells 18 months ahead of schedule, with McClendon receiving no new compensation. Last week, Leo Isaak and Minyan Elduque chimed in with their thoughts on what may happen to the company if McClendon were to step down.

For what it's worth, I'm selling the out of the money calls (that are now in the money, as I type, but are fading out quickly) I owned in front of this afternoon's earnings report as I'd much rather book the gains then play Russian Roulette.

Short Term "All Clear" Sign Nearby
John Cassimatis


Gold and silver have been weak, but have they really been going down? In the meantime the COT report readings of spec positions have improved dramatically (though I would still love to see a larger gross spec short position). RSIs and time are also shifting to the bulls. There have been a slew of downtrends in both metals capping trade and leading to the very quick selloffs that those long have endured over the past month. Here's the numbers:

Gold-A break over 1674 will likely lead to follow through buying perhaps for a good bit. There is no real resistance for a hundred points or more from that level.

Silver-A break over yesterday's high of 3143 should lead to a test of 3182ish. Its "all clear" above that.

Until we penetrate one of those levels, risk remains substantial-to 29.60 or lower. Above those, while the line will not be straight, I am a buyer, a buyer for sure.

The Spring (Switch) is in the Air
Michael A. Gayed


Well I guess there goes that whole "Sell in May, Go Away" thing. The action today is very healthy, and should intermarket trends continue, it looks like "May" could result in the flip of the Switch out of bonds and into stocks following the Summer Crash, Fall Melt-Up, and Winter Resolution. It looks to me that bonds yields can begin to rise as QE3 bets are removed. As I stated on Bloomberg's Taking Stock last Friday, maybe the Fed has been right all along (now that's a contrarian position).

Should this mark the beginning of another leg higher given strong bearish sentiment on emerging markets, I think the Energy sector may stage a period of real strength as the global growth story return to investor psyche. Keep watching small-cap stocks and China for any hint of money chasing beta to new all-time stock highs. Reflation can be a beautiful thing so long as you recognize it. Remember - betting with the crowd when the crowd is so convinced of the negative narrative may not be the right kind of strategy when SuperBen and the League of Extraordinary Bankers are putting out fires all over the place.


Wednesday, May 2, 2012

Faulty Signals
Scott Redler


Traders never like when markets are lead by the Dow -- it gives some faulty signals

Tech and the Russell both lagged yesterday before reversing towards the end of the day giving a sell signal (not game over -- but take profits).

Yesterday also felt a bit more like a short squeeze vs. real buying as traders have been trapped since last week.

ADP was NOT GOOD -- bulls have been hanging their hats on strong U.S data and this doesn't really support it. It also raises fears about the jobs number on Friday.

Big area of support for S&P is 1390-1392, SPY 139.30-139.40.

Then the line in the sand is at 138.50-138.70.

Whether Weather Gives Back or Not, April Jobs Disappoint
Peter Boockvar


ADP said the private sector only added 119k jobs in April, well below expectations of 170k, down from 201k in March and the slowest gain since Sept 2011. The service sector was where all of the growth occurred as 123k jobs were added. The goods producing sector lost 4k jobs led by a 5k drop in manufacturing and also in construction. As has been the case, small and medium sized businesses were the main source of service sector job adds.

Bottom line, because we've seen the weather distort for the better the winter month's data, it will take a few more months to get past the possible give back we're seeing now. Job gains in Nov were 226k, Dec totaled 267k, 182k in Jan, 230k in Feb and 201k in Mar and with the poor April figure, the 6 month avg is 204k. Friday's Payroll estimate, obviously before the ADP release, is 161k, 167k of which is from the private sector. The 10 yr note yield is falling to 1.90%, the lowest since Feb, in response to the disappointing report. A weak figure on Friday will start the calls again for more Fed action unfortunately without any acknowledgement by some that all the previous action hasn't helped at all.

FRED
James Anderson


The monthly Purchasing Managers Index (PMI) data are now available, and Markit.com produced the following chart that shows the difference between US PMI and Eurozone PMI. The gap last month is the largest in favor of the US since Eurozone data was first compiled in 1997.

The disconnect between the two has steadily increased for about a year, and I have been scratching my head trying to come up with a reason for this trend. The Federal Reserve Board of St. Louis manages a database called FRED (Federal Reserve Economic Data) of more than 45,000 economic time series managed by the Federal Reserve Bank of St. Louis. The data is freely available for anyone to chart, download, or do anything to it, and the charting feature is remarkable simple to use.

I started poking around and came up with the chart below. It is a graph of the S&P 500 versus the inverse of the natural gas price since last August. Could it all be as simple as that? There is a glut of natural gas in the US due to the new technologies of horizontal drilling and fracking source rock that previously could not produce much gas, but is now glutting the market with huge supply. The spot price of gas in the US was recently under $2.00 per MCF (thousand cubic feet); whereas, prices in Europe are typically in the $10-12 range, and rising. Putting together the forced austerity in much of Europe and high energy prices it's becoming more and more obvious that US manufacturing is developing a considerable advantage that won't go away soon, and perhaps the stock market is starting to reflect that advantage.


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Sentimental Snapshop: Vexing VIX
Steve Smith


While various sentiment indicators are far from full-blown complacency levels, there are some shifts that are beginning to raise warning flags.

As noted earlier, the Investor Intelligence Bulls/ Bears poll showed bulls to 43% with bears shrinking to 20.4%, while those in the correction camp jumped to 36%, which is a 10-month high. While the 23% spread between bulls and bears is fairly wide, it typically takes a decline below 20% bearish to register an "extreme" reading, and the large number of those in the correction camp (the undecided) suggests a general lack of conviction. Today's sell-off should prevent too many of those from jumping into the bull camp so this measure should remain mostly neutral or a essentially a non-tell.

More vexing is the action we are seeing across the VIX and volatility-based products. During the first three months of 2012, people marveled at how the VIX was dropping below 20% and then toward the 15% level. They were concerned this was an indication of complete fearlessness and therefore a contrarian (bearish) indicator.

But what was often failed to be noted was that the 30-day realized or historical or volatility had declined below 10%, bottoming near 7%, during that straight-run first quarter rally. This means the VIX, or implied volatility, was still carrying a nearly 50% premium over actual underlying stock market volatility, indicating a healthy level of "fear."

That has recently shifted dramatically .

Over the past two months, the 30-day realized volatility of the S&P 500 has more than doubled back above the 16%, but the VIX, or implied volatility on its 30 day options has actually dropped about 15%, back to the 17% level, meaning they are both trading nearing the same level.

This is a rare occurrence, and typically a sign that options are cheap and complacency is increasing. The last time we saw such a compression between historical and implied volatility was last May, which of course was prior to the summer swoon.

Yesterday seemed to offer some recognition that options were presenting a cheap shot at protection as the market hit multi-year highs and the index-only put/call ratio hit 1.55, its highest level in 3 weeks, suggesting there was institutional buying of index puts for portfolio protection.

But this morning, even with the market down, put buying remains mute as in the first hour of trading, the index-only put/call ratio stands at just 0.99, and the equity only put/call ratio is 0.48. Without a rush into put buying, which would provide a safety net and give a degree of comfort for buying dips, the market could be vulnerable to the correction that so many people seem to be expecting.


Thursday, May 3, 2012

Bearing Up for the Long Weekend
Todd Harrison

As discussed out of the gate this morning, I'm building exposure on the short side. I've doubled down on my S&P puts (with a stop above S&P 1420) and I've nibbled on some Deutsche Bank (DB) puts, as it (seemingly) violated a head & shoulders pattern that "works" through a technical lens to $32-ish.

Again, this is all one man's humble opinion and I've been wacked around a bit the last few weeks. Should the tide not turn lower, I'll take a hickie but I'm a big boy and that's a risk-reward that I'm willing to make and take.

To add spice to the mix, I'm out tomorrow as I've had longstanding plans to travel to Austin to see Tom Petty on Cinco De Mayo with my beautiful bride-to-be. Take me at my word that I'll be following, and perhaps trading , the price action from bell to bell, but I won't be able to scribe vibe in real-time. And no, I haven't even thought about cancelling; this is the woman -- and the musician -- I love.

You know were I stand; I haven't been this beared up in quite some time, but I'm measured in how I'm approaching my forward risk reward. Time will tell, and price will be the ultimate arbiter of variant financial views.

As always, I hope this finds you well.

R.P.


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A Special Message from Dr. J
MV Respect


Wise Men,

Here is the good news:

-Solid private sector employment growth, no help from housing (yet) and public sector headwinds, but very solid in services and mfg.

-Banks loans to small business are growing steadily (first time since pre-crisis)

-Low inflation, cheap electricity (gas and coal), low interest rates, mortgage rates < 4!

-Auto sales back over 15MM/year!

-THE HOUSING MARKET HAS BOTTOMED (Yep, you heard it here first -- or at least early). Doesn't mean it's going up, but it's not going down anymore.

-Corporate balance sheets are flush.

Here's the uncertain news:

-Corporate profits and margins are near record levels. Can they be increased or even sustained?

-And the bad news, as Mason aptly highlighted:

-Europe is a basket case with France going socialist again, Spain in the tank, and no government in Holland.

But, some of this is baked into the market.

-Washington, DC: Yawning deficits, regulatory headwinds, an Administration that doesn't understand business or its importance, a Federal reserve who has too many mandates, and the Bush tax cliff in 2013.

Summary:

-Very difficult to call, but harder to make a strong bullish case.

-My best guess is a very volatile market with a downside bias until there is 1) resolution about the election; AND 2) Europe takes a hit.

Hints:

-Bond Market vigilantes: If 10-year Treasury yields break above their 1.8-2.4% range, we're in a bull market.

-Europe needs to sell off and the DAX is forming a head and shoulders top. If we break downward through the neckline (around 6450) with increasing volume, then the downside will be around 5800-5900. That could be a major buying opportunity, if there is any progress in Washington (see chart below).

-Rather than "sell in May and go away", I'd say: "Much too hard to trade with perfection, so take a break 'till after the election!"

-In short, bearish thru the election cycle, but don't expect a crash, just increased volatility with a downward bias.Figure 1450 on the upside to 1275 (Strong support and Fibonacci retrace from the summer 2010 lows) on the downside for the S&P. I'm a seller 1400-1450 and a buyer 1275-1325.

Dr. J

S&P 500 Update
Serge Berger


After busting out of the 1357 – 1394-ish trading range on April 26, the index went as high as 1415. Critical near-term simple support is 1394. Below 1394 we see the 50% retracement of the 1357 – 1415 move, and below that, the 61.8% retracement at 1380.

Also note that there is a head and shoulders pattern in play here and if it were to work out textbook, it has a target at 1375.

A break above 1410 drastically increases the chances we see 1427, which is a 23.6% extension of the 1357 – 1415 move.

With tomorrow's April employment report up at bat, I for one will be in the dugout this afternoon.


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Friday, May 4, 2012

No Man's Land
Peter Boockvar


April Payrolls rose 115k, 45k less than expected BUT the prior two months were revised up by 53k and considering the weather issues, its best to average the months and thus things are about in line. The private sector added 130k jobs vs the estimate of 165k but last month alone was revised up by 45k. The unemployment rate ticked down to 8.1%, but for the wrong reason as Household employment fell by 169k, more than offset by a 342k decline in the size of the labor force. The participation rate fell to 63.6%, the lowest since 1981.

Encouragingly, the avg duration of unemployment fell to 39.1 weeks from 39.4 weeks, the lowest in a year. Discouragingly for many, avg hourly earnings were flat m/o/m and the y/o/y gain of 1.8% is well below CPI running at 2.7%. The avg workweek was unchanged at 34.5 hours. Mfr'g added 16k jobs, 4k less than expected but the prior month was revised up by 4k. Construction fell slightly and Retail saw job gains after the two previous months of declines. Temp help rose by 21k. While the Federal Govt added 10k workers including 8k more in the Post Office (which makes little sense), local gov'ts shed a net 11k jobs, led by a drop in education.

Bottom line, the muted market response to the weak headline number was due to the offset from the upward revisions in the two prior months, leading to an in line figure taken together. This said and as I've been saying, the data isn't strong enough to get excited and not weak enough to get the Fed to think they need to do more right now, a no man's land that will keep a lid on stocks for the time being.

Gap Draw
Marc Eckelberry


Prior to yesterday's open, I noted the following :

" ...I would not get too bearish short term as long as NQ (NDX futures) holds the 2699 level. A break below 2699 sets up a test of the "AAPL gap" of 4/24 (2633.25) with immediate risk to 2686"

We did indeed lose the 2699 level at the close and this sets up an eventual resolution to the gap at 2633, currently battling 2686. The 2737.25 level (also mentioned as resistance, 1.5x initial balance 2012) was relentlessly sold yesterday, as value is obviously being sought lower. Small speculators have been getting more and more bearish per the equity put to call ratio, but that is not yet translating into any meaningful rally (chart).

At this stage, I doubt very much that the 2012 NDX high (a milestone level just under 50% of the secular bear market) gets seriously challenged anytime soon. My fears that the 2009 cyclical bull ended last month have yet to be negated.

Watch the EURUSD pair. If it holds 1.3145, could get back up to test 1.3204 resistance. Draghi not cutting and NFP miss adds to some euro side support and QE trades, with ZN strong (ten year note).


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The Market's Technical Fiscal Cliff Mirrors the Fiscal Cliff
Jeff Cooper


This week, we are 555 weeks from 9/11.

The same astro event that coincided with 9/11 returns today, I am told by those more familiar than I with the celestial.

9/11 represented a 'changing of the guard' between east and west.

We may well see another changing of the guard in this weekend's French elections, which I offered some time ago in this space could be a socio-economic catalyst with 'let them cake' trumping the austerity icing.

Interestingly, this same 555 vibration ties to the 555 S&P point first impulse off the March 2009 low to the early May 2010 top.

Arguably, the market may have been fated to stay below and trend below its 1220 peak of May 2010 if the Fed had not unleashed the hounds of QE2.

But the Fed may be in a political box this May with the U.S. election approaching and the Goldilocks jobs numbers of 'not too hot and not too too cold' handcuffing Fed governors.

Goldilocks may not get botox this time around.

Interestingly, the move from the 2009 low to the 2010 top of 555 points roughly represented a .618 Fibonacci retrace.

555 also happens to be 90 degrees and square of May 1 as shown in a Square of 9 Chart below.

The takeaway is that this period could tie to a changing of the guard in the stock market.

The S&P 500 (^GSPC) stabbed below last year's 1370 in April and rallied back to test the highs with the Dow jones Industrial Average (^DJI) making a nominal new high.

The April low held the key pivot from last year; the 1358/1360 level that defined left and right shoulders on the weekly S&P.

See the weekly S&P for 2011 below. (second chart)

A second break below the key 1370 level that follows through may be a 'blade runner', or a knife below the prior big picture shoulders.

Caution is warranted: if the April break was a wave 1 down followed by an A B C upward correction, then the S&P may be embarking on a sharp 3-wave decline.

Arguably, this could be a powerful "3 of a 3" cascading decline.

Why?

It is possible to count the decline from the 2007 top to the 2009 low as a big wave 1 decline, and the ensuing 3-year advance as a corrective wave 2 with the market on a technical cliff mirroring the fiscal cliff referred to by El-Erian yesterday.


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Twitter: @Minyanville

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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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