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Job Losses Trump Wall Street's Hype About Growth

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Community and regional banks, in addition to homebuilders, are proving to be stronger than expected.

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Editor's Note: This article was written by Richard Suttmeier, chief market strategist at ValuEngine.com, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

The Federal Reserve statement on unemployment:
"The employment-to-population ratio had fallen to a 25-year low, and aggregate hours of production workers had dropped more than during the 1981-82 Recession. Although the November employment report was considerably better than anticipated, several participants observed that more than one good report would be needed to provide convincing evidence of recovery in the labor market."

Initial jobless claims at 434,000 last week has been touted as a great improvement to the labor market, but jobless claims above 350,000 is recessionary -- 10.5 million Americans are getting unemployment benefits and there's a lack of job creation with the non-manufacturing jobs component at 44, that's job contraction in 70% of the US economy.

Wall Street hyped that nonfarm payrolls would be up as much as 50,000 but Main Street woes showed a loss of 85,000 jobs with the unemployment rate holding at 10%. Hours worked was unchanged at 33.2 hours per week. The pre-market reaction kept the US Capital Markets within their staging ranges.

The Dow
continues to move higher in a continuation of 2009.

Today's pivot is 10,594 with weekly resistance at 10,746. My annual support is 10,379 with monthly resistance at 10,997. My prediction called for a Breakout followed by a Fake-out. We had the Breakout as shown on the weekly chart. A weekly close below 10,379 indicates risk toward quarterly support at 6,705.


Source: Thomson / Reuters

A return of economic weakness will be led by another round of deterioration in the housing market followed by cascading bad loans in the banking system. So far this isn't playing out when I look at the daily charts for housing and banking industries. This sets a high bar for earnings for regional banks mid-month.


Source: Thomson / Reuters

The Housing Sector Index (HGX) is up 6.5% in the first four days of 2010. The daily chart shows an overbought condition. Monthly support is 99.90 with monthly resistance at 115.05 and the September 17 high at 116.81. Remember that new-home sales plunged last month and that the National Association of Home Builders Housing Market Index is at an extremely low 16 reading when 50 is neutral.

The America's Community Bankers Index (ABAQ) is up 2.4% in the first four days of 2010. The daily chart is overbought. Semiannual and monthly supports are 146.67 and 144.18 with monthly resistance at 151.99, and the August 10 high at 158.75. The FDIC will close 150 to 200 banks this year and most will be community banks overexposed to C&D and CRE loans.


Source: Thomson / Reuters

The Regional Banking Index (BKX) is the outperforming group in the first four days of the year, up 10.3%. The daily chart will be overbought today. Semiannual support is 40.76 with the October 14 high at 49.28 and monthly resistance at 51.85. When these earnings come out mid-month, we'll see whether or not the accounting camouflage is strong enough to mask the growing lists of bad loans.


Source: Thomson / Reuters

In 2007, the Achilles Heel was subprime loans. As they were imploding, Treasury Secretary Henry Paulson and Fed Chief Ben Bernanke both said that subprime woes would be contained and wouldn't spread to the real economy. This year's Achilles Heel is commercial real estate, and Wall Street is ignoring this risk because it's isolated to Main Street.

In the US Capital Markets all key levels remain in place: The 10-Year yield is between 3.868 and 3.675. Gold is between my annual pivot at $1115.2 and monthly resistance at $1166.7. Crude oil is above my annual support at $77.05. The dollar index is below $80.23.

Send me your comments and questions to Rsuttmeier@Gmail.com.
No positions in stocks mentioned.

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