12:20pm (EST)
Market breakouts and breakdowns are hard to call when an index or a stock are stuck in a trading range. Often times, support and resistance can get stretched which can test your patience so it’s important to keep your emotions in check despite the temptation to change your game plan.
This morning’s jobs report was a major disappointment but the President feels as though things are on the up-and-up while the talking heads try to spur talk of another “QE3” launch. Believe it or not, they are not spinning it in a good way because they know the market needed a print of 125,000 or better for the rally continue.
Expectations were running high coming into the monthly Nonfarm Payrolls report and estimates were being raised following yesterday’s “better-than-expected” ADP Employment numbers. Goldman Sachs (GS, $95.14, down $0.78) bumped their estimates from +70,000 to +125,000 and should have stuck with their original bet.
There were no silver linings in the report which showed the economy added just 80,000 nonfarm jobs. The average estimate for Nonfarm payrolls was 100,000 so it was a big miss.
Private sector employers added 84,000 jobs, well below what the ADP suggested, and short of expectations for 106,000. The unemployment rate came in at 8.2% and matched expectations. Average Hourly Earnings were up a smidge to 0.3% versus a forecast for a 0.2% gain while the Average Workweek edged up to 34.5 hours from 34 hours.
We told our subscribers Thursday morning a 2% market drop could be in the cards if Nonfarm Payrolls disappointed and that the back test to resistance was nearly complete. The bears have cracked one layer of support and it’s too early to tell if they push another layer today or on Monday but things could get nasty in a hurry.
Second-quarter earnings will start to trickle in next week and there have been plenty of high-profile warnings. Alcoa (AA, $8.65, down $0.27) and Yum Brands (YUM, $64.35, down $0.40) will lead the parade which starts Tuesday and we will have a complete list of the companies reporting in our Weekly Wrap.
As far as market, the Dow is down 190 points, or 1.5% to 12,706. A close below 12,750 favors the bears going into next week while a finish above 12,800 would favor the bulls.
The S&P 500 is lower by 18 points, or 1.2%, to 1,349. The 1,350 level has been a bloody battleground for both sides and whoever wins the over/ under will be the favorite for next week.
The Nasdaq is getting spanked for 50 points, or 1.7%, and is at 2,925. A close below 2,925-2,900 would be bearish while a finish above 2,950 could be bullish heading into next week.
Our feeling is today’s U.S. economic news will spill over into the overseas markets on Monday/ Sunday night which could cause some heavy selling pressure next week if the next layer of support doesn’t hold.
It will be interesting to see how the second half of trading plays out because we doubt there will be a lot of traders willing to stay long over the weekend. We often say the market or a stock will take the stairs higher but an elevator lower and we are getting some nice pin action on our current put options.
We will be back Sunday night with our Weekly Wrap (which is 20-0 for the year) and some chart work. If the selling pressure picks up, look out below. Until then, have a great weekend everyone!
